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

Wednesday, September 18, 1996

(RNA) of SWIFT members on Tuesday that the Central Bank of Russia will join the RNA in November and will adopt uniform parameters of payments and transactions with securities.

The conference, which was attended by representatives from 98 banks, elected the new RNA Committee. The committee includes representatives from major Moscow and regional banks, such as Inkombank, Vneshtorgbank, the International Moscow bank, Mosbusinessbank, the St. Petersburg bank, as well as one representative from the Central Bank and one from the Association of Russian banks. The RNA, established in July 1995, currently unites 229 banks in 37 Russian cities.

Yasin on Foreign Investment, Businesses

· Russian Economy Minister Yevgeny YASIN told RTV news on Tuesday that foreign investment in Russian industry has doubled so far this year amounting to $1.2 billion in the first half of 1996. He stressed that his ministry is committed to supporting foreign investment. The plan is expected to be approved by the government by the end of the year.

YASIN told the American Chamber of Commerce in Moscow today that the government was drafting a new four-year business reform program aimed at motivating Russian businesses to voluntarily change their management and asset management practices in order to increase efficiency, reported Reuters. The program will require companies to clarify manage

Russian Federation

Politics

Russian Armed Services Need Money

· In August, the servicemen of the Russian army and navy received no pay at all, reported Itar-Tass on Tuesday, citing the Defense Ministry information department. In July, only 4.4 percent of the Defense Ministry's financial needs were met, while in August, nothing was remitted. Meanwhile, the Interior Ministry was 96-percent financed in July and only five percent was paid in August; Border Guard Service—100 percent and 95 percent, respectively; Federal Agency of Government Communications and Information (FAPSI)—95.4 and 74.4 percent; and Federal Security Service (FSB)—100 and 90 percent.

Discriminatory financing of the Russian armed forces is the main reason why military reform was halted, soldiers are poorly dressed and hungry, officer's wives are in a desperate position, and the number of protesters in servicemen's families and military trade unions is growing. Defense Ministry officials believe that "the time has come for state officials to look in the eyes of the military and honestly say whether Russia needs the army at all," it said.

Economy

Ruble = 5,380/$1.00 (NY rate)

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

Ruble = 5,359|5,399/$1.00 (buy|sell rates)

Central Bank to Join SWIFT System

· The Russian Central Bank will begin in November to carry out transactions through the Society for Worldwide Interbank Financial Telecommunications (SWIFT) network, reported Itar-Tass. Central Bank deputy chairman Nikolai Yegorov told the annual conference of the Russian National Association

Today's News Highlights

Russia

US Firm Troubled by Lawsuits

Ericsson in Radio System Deal

Miller Expands in Russia

European Republics

Grain Harvest Figures

CETV Buys Ukraine TV Stake

Transcaucasia & Central Asia

Grain Harvest Figures

ATCO in Kazakh Project

Tajik Cease-Fire Signed

Politics-Economics-Business

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September 18, 1996

Intercon's Daily

ment and shareholder rights and duties, giving primacy to shareholder rights, he said. It will also encourage companies to adopt international accounting standards and calculate profit tax and value-added tax on an accrual basis, rather than a cash basis. "Companies which follow these (international accounting) standards will have their profit taxes lowered by, say, five percent...or maybe they will receive other privileges," YASIN is quoted by Reuters as saying.

US Firm Troubled by Russian Lawsuits

· The US firm Nick and C Corporation has encountered major difficulties investing in Russia. Early in the privatization process, the company bought up major shares of Russian domestic aviation enterprises. As a result, it became the subject of vicious speculation about secret, subversive plans to control the Russian domestic aviation sector and to buy up its intellectual property in order to undermine its competitiveness vis-à-vis the US. Nick and C's purchase of shares in the St. Petersburg Leninets Holding company and Moscow Avionika, in which it bought more than a 34 percent stake, were discussed with concern by high-level Russian authorities. Some of the accusations against the American firm were circulated by Avionika's general director, who sent a letter directly to President Boris YELTSIN, according to today's Izvestia. The deals were, and still are being, investigated by the Prosecutor's offices and arbitration courts, but most of the lawsuits were won by the US firm. The vice president of Nick and C told Izvestia that the companies investments were simply aimed at turning a profit and nothing more. However, the legal and court costs have only led to major losses in Russia for the US company.

Russian IRS to Inspect Commercial Banks

· Russia's State Tax Agency will conduct a large-scale inspection of Russian commercial banks over the next month to look for concealed profits and increase tax revenues, reported Tuesday's OMRI, citing Kommersant-Daily. One-quarter of Russian banks are believed to have broken existing tax laws, said Saturday's Kommersant-Daily. One-third of banks carried out payment from clients' accounts with delays stretching from 10 to 60 days. The volume of delayed payments to the federal budget now totals 1.2 trillion rubles (about $223 million).

Business

Ericsson in Moscow Radio Deal

· Swedish telecommunications firm LM Ericsson Telefon has signed a contract with Russian holding company ROSIKO to deliver and install its EDACS private radio system for the city of Moscow and surrounding area, said a company statement on Tuesday. Installation of the system will begin mid-October with the first base stations expected to be in the first stage of operation by December 1997. The end users will be Moscow municipal services including transport, public utilities, and fire service.

The ROSIKO holding company was established in 1995 as a system integrator for telecommunication projects including long distance communications, satellite system-based data transfer, mobile radio and telephone communications, electronic mail, audio, and videotext. ROSIKO customers include Kemerovo railways and the Moscow Government Employment Department. The holding company's area of activity covers Moscow, St. Petersburg, the Leningrad region, and Kaliningrad.

EDACS, the Ericsson system for private radio systems, is designed to meet the special communications requirements of law enforcement authorities, fire departments, rescue services, security organizations, airports, and industrial companies. EDACS handles both voice and data communications on the same channel. The Russian Border Guard Service has been equipped with this system since 1994. In July 1996, Ericsson's EDACS system provided communications at the Cutty Sark international sailors regatta held in St. Petersburg. Ericsson opened an office in St. Petersburg in spring 1996. Ericsson equipment has been put into operation or is in installation in more than 50 regions of Russia.

Miller Beer Comes to Russia

· The international arm of Milwaukee-based Miller Brewing Company has extended the distribution of its brands into Russia, including the promotion of a new beer, made exclusively for this market, said a company press release on Tuesday. Under the terms of a three-year agreement commencing this month, Miller Brewing International will supply a variety of products for distribution through Stanley Beverages Ltd., a Russian company with offices in

When you need to know it as it happens

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Moscow and Riga, Latvia, which distributes to fifty locations throughout Russia. Key brands selected for export are Miller Genuine Draft in 12-ounce bottles and a new product designed specifically for the Russian market, Miller Magnum 7.2 in 12-ounce bottles and 16-ounce cans.

"Russia is a key market in our global ambitions. We are extremely pleased with our volume shipments to date and current performance leads us to expect to exceed our forecast considerably in the first year of operations. Miller Brewing International will work closely with Stanley Beverages to build a significant presence in Russia over the coming months and years," said Miller Brewing International senior vice-president/managing director Richard Strup.

Distribution of the products will be primarily in urban areas, including Moscow and St. Petersburg. A high proportion of beer sales go through roadside kiosks serviced from wholesale centers. The launch has been supported by billboard advertising in English and Cyrillic, subway posters, etc.

Vladivostok Distillery to Pay Taxes in Vodka

· The Vladivostok Distillery, which recently declared bankruptcy, has decided to pay off its tax arrears to the federal budget in kind—3.6 billion rubles worth of vodka, reported Itar-Tass. According to Primorsky Krai tax police spokesman Vladimir Palagutin, the distillery has no cash because there is no demand for its product. He explained that it is not the bad quality of vodka, but its high price compared with such brands of Rasputin or Petroff, that are ubiquitous in the kiosks of Vladivostok. The Krai tax police will sell the collected vodka and revenues will go to the accounts of the Central Bank.

Belarus agriculture ministry officials report that the grain harvest is proceeding on schedule this year and output is expected up as grain yields per hectare are improved. Last year, Belarus harvested 5.5 million tons of grain, down from 5.9 million in 1994.

CETV Buys Stake in Ukraine TV

· Bermuda-based Central European Media Enterprises Ltd. (CETV) said on Monday it has reached a preliminary agreement to acquire a 50 percent equity interest in Ukraine's Studio 1+1 group of companies, reported Dow Jones. A CETV press release said that the Studio 1+1 group provides 50 hours of programming, broadcast every week during prime time, on the Ukraine state network UTV Channel 1. UTV covers 98 percent of the country's 52 million people. Financial terms were not disclosed. CETV owns, operates, and develops national and regional private commercial TV stations in six Central and Eastern European countries.

Transcaucasia and Central Asia

Caucasus/Central Asia Harvest Figures

· A Georgian agriculture ministry spokesman has predicted that the country's 1996 grain harvest will reach only 500,000 tons, down from 531,000 tons in 1995, reported Reuters. The ministry had hoped that production this year would reach 600,000 tons, including 360,000 tons of wheat. For this purpose, the area sown to grain was increased to 420,000 hectares from 280,000 hectares in 1995. The poor grain crop was caused by a lack of cash for fertilizers and proper harvest, said the ministry.

A US agricultural attaché estimated this month that Uzbekistan's 1996/1997 grain crop would reach only about 2.7 million tons this year, nearly on par with last year's harvest, despite government efforts to increase production. Although the area sown to wheat was expanded, yields declined, he said. The Uzbek government had targeted a harvest of 4.5 million tons of grain this year. Domestic demand for the country's 23 million people is 3.5-4 million tons a year. Uzbekistan imports the bulk of its grain from Kazakhstan.

Kyrgyzstan's state statistics committee has forecast the 1996 grain harvest at 1.3 million tons, including 850,000 tons of wheat. The 1995 harvest totaled some 980,000 tons. Domestic demand in Kyrgyzstan,

European Republics

European Republics Harvest Figures

· The Ukrainian government expects this year's grain harvest to decrease significantly from last year, partially due to lower yields, but exports are expected to rise. Ukraine's Deputy Prime Minister Mikhail ZUBETS predicted last month that the 1996 grain harvest will total 28 million tons, down from 36.5 million tons last year. Grain exports to neighboring former Soviet republics are expected to reach three million tons this year.

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a country of some 4.5 million people, is about 850,000 tons of grain annually.

ATCO in Kazakh Conversion Project

· ATCO Europe Ltd., a unit of Canada's ATCO Structures Inc., has been awarded a $1.8 million contract to provide custom-designed base camps which will accommodate US and Kazakh personnel undertaking a three-year missile silo dismantling program in Kazakhstan, reported Dow Jones. The contract was awarded by Brown & Root Civil, a subsidiary of Halliburton International/ABB SUSA Inc., on behalf of the US Defense Special Weapons Agency, said an ATCO press release. The camps will be moved to four sites where reclamation activities will be undertaken to revitalize areas which previously stored nuclear missiles. Each 22-person camp, and associated support buildings, is being built in ATCO's European manufacturing plant in Budapest. The finished camps will be delivered by rail from Hungary to Kazakhstan in September.

Intercon reported in February that the threeyear, $31 million contract to demolish the former Soviet Strategic Rocket Force's Intercontinental Ballistic Missile (ICBM) silos in Kazakhstan was awarded to the 50/50 joint venture, comprised of ABB SUSA Inc. and Halliburton's Brown & Root.

Kyrgyz President Begins Corruption Probe

· At a recent Kyrgyz Security Committee meeting, President Askar AKAYEV has ordered the country's law enforcement agencies to crack down on economic crimes, especially those involving government officials, reported Xinhua today. He said that the present "shadow economy" is dangerously large at 13 percent of the country's gross domestic product, threatening the reform process and economic security. He said that a total of 168 officials at different levels were convicted of economic crimes this year, compared with only 38 officials in 1995.

Tajik Opponents Sign Cease Fire

· Tajik opposition rebels have agreed to cease

military actions in the mountainous eastern half of the country and cede control over regions seized in recent fighting against government forces, reported United Press International (UPI) today. Opposition field commanders signed a cease-fire protocol with government ministers at a meeting in the eastern city of Garm. The two sides pledged to observe a truce, reached in July at UN-sponsored talks in Ashgabat, but never actually followed. The opposition said it would allow local police and security troops to return to their precincts and headquarters in the Dzhjirgatal and Tajikabad regions, two areas seized by opposition forces earlier this month.

The protocol calls for both sides to remove military outposts from the single highway from Dushanbe into eastern Tajikistan and the Kyrgyz border. Tajik field commander Nizomov plans to travel to Afghanistan to discuss the deal with opposition leader Said Abdullo Nuri, who was driven across the Afghan border during a bloody 1992 civil war and is now based in the city of Talukan.

Frequent fighting has occured along the border and in eastern Tajikistan since the end of the war, despite repeated cease-fire accords and five rounds of peace talks between Nuri's Party of Islamic Revival and the Tajik government.

Updates

Chechnya: Russian Security Council secretary Aleksandr Lebed said on Tuesday that the withdrawal of the Russian troops from Chechnya will resume soon, reported the Associated Press (AP). Lebed made the announcement after his negotiations with Chechen rebel commander Aslan Maskhadov at the Chechen village of Novye Atagi. During the negotiations, the two sides also reached agreement on the exchange of prisoners of war and the establishment of a coalition provisional administration in the region. Earlier on Tuesday, LEBED also held talks with Chechen rebel leader Zelimkhan Yandarbiyev.

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

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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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