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

Friday, September 20, 1996

Russia, whose leader is Council economic security department head Sergei GLAZYEV, recently issued a statement accusing CHERNOMYRDIN and Communist Party leader Gennady ZYUGANOV of conspiring against LEBED and plotting a "creeping coup d'etat," reported Wednesday's OMRI, citing Izvestia. The statement alleged that both government officials and Communists are waging a campaign to discredit LEBED and his Chechen peace initiative.

While the other two are struggling to "cooperate" in an atmosphere of mistrust, CHUBAIS and the presidential administration have quietly been taking control over important economic functions. Recently, oversight of the State Tax Service and the Federal Securities Commission passed from the government to the president through a YELTSIN decree, effectively giving CHUBAIS control. This raises him to be a key figure in the Russian economy, a position he lost when he was removed from his post as Deputy Prime Minister and privatization chief in January.

According to an article in this week's Moskovskiye Novosti, the fact that "he is becoming an increasingly independent and influential figure...gives the financial groupings standing behind him serious hopes that in the president's absence their interests will not be infringed." The continued allegiance to CHUBAIS of the major financial interests, which helped him get YELTSIN re-elected, is vital to his future role in Russia.

Furthermore, the most recent sign of CHUBAIS' ascendancy in the power struggle is

Russian Federation

Politics

Chubais Winning Kremlin Power Struggle?

· Although gains and losses are often difficult to measure—or sometimes even detect—Russian presidential chief of staff Anatoly CHUBAIS appears to be gaining on Prime Minister Viktor CHERNOMYRDIN and Security Council chief Aleksandr LEBED in the power struggle being waged while President Boris YELTSIN is absent from the Kremlin corridors. Although CHERNOMYRDIN will be acting head of state during YELTSIN's operation, the duration of this power transfer will be brief and is likely to complicate his relations with LEBED, while in the meantime, YELTSIN has passed on to CHUBAIS' jurisdiction over some economic functions formerly overseen by the CHERNOMYRDIN government.

The main authority given to CHERNOMYRDIN under YELTSIN's power transfer decree is supervision of the country's "power structures." This indirectly puts him in charge of the settlement of the Chechnya conflict, a potentially politically-explosive situation which also requires dealing with LEBED. For his part, LEBED's maneuverings for a say in economic policy have been generally ignored by the government. Moreover, CHERNOMYRDIN's responsibility for the power structures makes LEBED's status seem even more ambiguous. LEBED has been attempting to involve CHERNOMYRDIN in the Chechnya peace process. Not only has the premier refused to definitively endorse the proceedings, however, he has also avoided becoming more directly involved, apparently trying to keep his distance in case of a failure.

Meanwhile, LEBED's people see CHERNOMYRDIN as engaged in a deliberate campaign to oust the Security Council chief. The Democratic Party of

Today's News Highlights

Russia

Potanin Receives Cttee Post

Soskovets to Head FIGs

IOC Delegation in Petersburg

Russia-De Beers Contract

GE Russia Sales Good

European Republics

Estonia's Meri Re-Elected

Transcaucasia & Central Asia

US Case in Uzbek JV

Uzbek Airport Tender Planned

Politics-Economics-Business

Page

Friday

September 20, 1996

Intercon's Daily

Ruble = 5,402/$1.00 (NY rate)

Ruble = 5,384/$1.00 (CB rate)

Ruble = 5,364|5,404/$1.00 (buy|sell rates)

Deputy Prime Minister Vladimir Kadannikov, who was not included in the new government.

Soskovets Gets FIG Association Post

· Former First Deputy Prime Minister Oleg Soskovets, who was removed from his post in July, has emerged as the chairman of the Financial-Industrial Groups (FIG) Association, reported today's Kommersant-Daily, citing the Association press service. The FIG Association, that currently unites 30 FIG's and 60 commercial banks, officially employing approximately 450,000 personnel, was created earlier this year. Soskovets, who was an active proponent of the idea of organizing the Russian economy into FIGs while in government, was elected its first chairman by enterprise managers and bankers.

IOC Surveys Petersburg for 2004 Olympics

· The evaluation committee of the International Olympic Committee (IOC) toured St. Petersburg this week to consider the city's bid to host the 2004 Summer Olympics. A special selection committee will meet on March 7 to name four or five cities to enter the final contest for hosting the Olympics. St. Petersburg, one of eleven cities (Stockholm, Lille, Seville, Istanbul, Athens, Rome, San Juan, Rio de Janeiro, Buenos Aires and Capetown are the others), is not expected to be among the finalists.

Economy

Russia and De Beers Agree on Draft Contract

· Russian diamond giant Almazy Rossii-Sakha (ARS) and South Africa's De Beers have drafted a three-year trade contract under which Russia is to sell an annual $550 million worth of uncut diamonds through De Beers' London-based Central Selling Organization (CSO). The remainder of the ARS' diamond production will go to Russia's diamond-cutting and polishing industry. Last year, Russian diamond exports totaled about $1 billion, according to government figures.

A Russian Finance Ministry spokesman told Itar-Tass on Wednesday that ARS has submitted the draft contract to the Finance Ministry and the State Committee for Precious Stones and Gems for approval. The Committee will continue to function until late November, at which time it will be taken over by the newly-formed Industry Ministry and the Finance Ministry. Itar-Tass also suggested that the Russian

Apr May Jun Jul Aug Sep

the method by which President YELTSIN is transferring power to him during the upcoming heart surgery. The decision to have YELTSIN sign three decrees—one outlining the details of the transfer, another setting the date of the transfer, and a third ending the transfer—is widely attributed to CHUBAIS' influence. Today's Kommersant-Daily suggested that it is a way for CHUBAIS to control, that is keep short, the duration of the transfer.

Comment: More than anything, the ongoing and complex struggle for power between various forces within the Moscow establishment startlingly illustrates the incohesiveness of the Russian government. More and more voices, representing multiple Russian governments rather than one central authority, are speaking for official Russia. It is increasingly unclear which of the many Moscow fiefdoms actually runs the country. And more frighteningly, the ability of the government to effectively govern itself, as well as vast Russia, is becoming ever more uncertain. Without a unified authority, the centrifugal forces within the power structures, and within Russia itself, threaten the very foundations of the country.

Potanin Receives Committee Post

· Russian President Boris Yeltsin has named First Deputy Prime Minister Vladimir Potanin to head the Russian committee for cooperation with international financial and economic organizations and the Group of Seven, the presidential press service said on Thursday. Potanin replaces former

Politics-Economics-Business

When you need to know it as it happens

Page

Friday

September 20, 1996

Intercon's Daily

Security Council may have some say on the contract. The government has the final word on the contract.

The draft contract is a breakthrough for De Beers which has been negotiating with Russia since their last multi-year contract ran out in December 1995. The two sides signed a memorandum of cooperation in February, but negotiations became stalled due to the political uncertainty surrounding the Russian presidential elections and the forming of a new government.

It is also apparently a good deal for Russia which sought to increase its share of direct sales and to develop its domestic diamondpolishing industry, while De Beers has been reluctant to give up control of the international market. The previous contract obligated Russia to sell 90 percent of its uncut diamonds exports through the CSO.

UNCTAD Annual Report Out

· The annual report of the UN Conference for Trade and Development (UNCTAD), released this week in Geneva suggests that Russia's gross domestic product (GDP) has begun a recovery this year, after a drastic post-Soviet decline. Considering the "dimensions and importance of the Russian economy," its growth may "substantially contribute" to the economic recovery of other Central and Eastern European states, Itar-Tass cited the report as saying.

The UNCTAD report also highlights the "greatly differing" economic situations in the countries of the Commonwealth of Independent States (CIS). Gross national product is growing appreciably in Armenia and Georgia, but has continued to drop in other republics—up to 10 percent and more in Azerbaijan, Belarus, and Ukraine. These differences in transition are explained either by the slow implementation of reform or by the fact that reform measures could not produce any tangible results in the short run.

Business

GE Russian Sales at $500 Million

· US General Electric Corp. (GE) had more than $500 million in annual sales in Russia in 1995 and is seeking to further capitalize on the vast potential of the Russian marketplace, GE's Moscow representative told RIA Novosti on Thursday.

GE currently has three joint ventures in Russia, including a project with Rybinsky Motors that will soon begin manufacturing helicopter and aircraft engines. GE has also sold gas turbines and power distribution equipment to Russian gas monopoly Gazprom. However, GE's biggest Russian contract to date was for the delivery of sodium-vapor street lights for Moscow's ring road.

ABATE Calls for Trade Policy

· The American Business Alliance for Transition Economies of Eurasia (ABATE) issued a statement recently calling for the US to adopt a more active trade policy toward Russia, recognizing it as a key regional economic partner. ABATE is a newly-formed group of US business interests in Eastern Europe and the NIS. The group represents about 80 major corporations and members of the joint economic councils and working groups in Eastern Europe, including Ukraine. The Russian market already ranks among the top five markets for food and agricultural commodities, chemicals, certain types of consumer goods, and high-quality machinery.

When you need to know it as it happens

Politics-Economics-Business

Page

European Republics

Estonia's Meri Re-elected

· Incumbent Estonian President Lennart MERI was re-elected today with 196 of 372 votes, ending a five-round election ordeal. The necessity for repeated attempts to decide the presidency is seen as a sign of waning support for MERI at home, despite his international popularity.

Today's vote, by a specially convened electoral college, was forced to a second round this afternoon, when the first round of voting was inconclusive. MERI, receiving 139 of 372 votes, and his political arch-rival Arnold RUUTEL receiving 85, were the top two scorers in the first round. Three other contenders participated in that round—nationalist Tunne

Friday

September 20, 1996

Intercon's Daily

KELAM received 76 votes, academic Enn TOUGU, 47 votes, and the only woman candidate Siiri Oviir, 25 votes. Today's session was convened because three rounds of voting by the 101 member parliament last month failed to give either MERI or RUUTEL the required 68 votes to win the presidency.

Transcaucasia and Central Asia

Armenian Presidential Election on Sunday

· Incumbent Armenian President Levon TER PETROSYAN, campaigning on promises of continued economic reform and the formation of a middle class, will face a challenge in Sunday's presidential election from his former ally and prime minister Vazgen MANUKYAN, who has been stressing the development of democracy and issues of the mafia and national minorities. Communist Sergei BADALYAN and Ashot MANUCHARYAN of the Party of Science are also contenders, but are not expected to offer serious competition.

TER PETROSYAN, a philologist and former dissident who led the popular movement for Nagorno-Karabakh's independence, is favored to win by public opinion polls and most analysts. He is expected to win the more than 50 percent of the vote needed to avoid a second, runoff round of voting.

However, he faces a significant challenge from Manukyan, who is backed by five main opposition parties, and for whom three candidates dropped out of the race. MANUKYAN has been capitalizing on the disaffection of the country's majority poor populations with promises of increased wages, a battle against corruption, and industrial development.

Case Credit/Uzbek JV Announced

· US Case Credit today announced the signing of a joint venture agreement with the Association of Banks of Uzbekistan to create UzCaseagroleasing leasing company, said a Case press release. Case will hold the majority interest in the new company, which will provide financing in the Uzbek agricultural sector. Among other activities, the venture will se

cure financing from international institutions to facilitate purchases of Case agricultural equipment. Case has already sold approximately $65 million in equipment in Uzbekistan, and has provided parts and service to ensure productivity. This initiative, one of the first of its kind in Central Asia, is Case's first investment in the region. Case CEO Jean-Pierre ROSSO said the US company sees the project as a model which may be expanded and developed in other markets. Case Credit is a wholly owned subsidiary of Wisconsin-based Case Corporation.

Uzbek Airport Tender Planned

· The Uzbek national airline Uzbekiston Khavo Yullari has announced a 17.288 billion yen (about $162 million) international tender, to modernize the Samarkand, Bukhara, and Urgench cities' airports, reported Reuters. A loan from Japan's Overseas Economic Cooperation Fund (OECF) will cover 15.526 billion yen, while the equivalent of 1.762 billion yen in Uzbek soms will be contributed by the airline, said tender coordinator Khairulla ABDULLAYEV, as quoted by Reuters. This tender covers the modernization of runways, landing systems, lighting, and terminals—the first stage of a larger airport project. A second tender will be held for the second stage of the project—upgrading taxiways and air traffic control facilities. Bids will be accepted from today until November 18, with work to start in January 1997, and be completed by September of the same year.

Media Markets in Russia and the CIS

St. Petersburg, Russia

October 22_23, 1996

Organized by: The Adam Smith Institute

Conference will cover developments in broadcasting,

advertising, financing, and programming,

as well as analyze legislation and regulation.

Information: Gabriela Cogorno

Tel: (44 171) 505-6043; Fax: (44 171) 251-6909

E-mail: 100451.3122@compuserve.com

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.

When you need to know it as it happens

Politics-Economics-Business

Page