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 23, 1996

Russian Federation

Politics

Yeltsin Fitness for Surgery in Doubt

· Renat Akchurin, the Russian doctor expected to perform heart surgery on President Boris YELTSIN, caused a sensation this weekend when he told ABC News on Friday that the President had probably suffered a third, previously-unknown heart attack. The episode had likely taken place between the two rounds of presidential elections, in late June or early July, and was covered up so as not to jeopardize YELTSIN's re-election chances.

AKCHURIN and other Russian doctors have questioned whether YELTSIN's overall health is good enough for him to risk major surgery. YELTSIN is known to have problems with several major organs, including the liver and kidneys. AKCHURIN suggested on Friday that the operation should be put off for 6-8 weeks so that YELTSIN's heart could regain strength, or that perhaps the President should not be operated on at all. "We will see how the patient is prepared for the operation. Any risk should be justified. If the risk is justified, go and do the operation. If it is not, don't do silly things," he is quoted by Reuters as saying. "We need to go through a certain prepatory period and YELTSIN, who whips us up all the time, seems to understand this. An earlier date of the operation means greater risks."

Moreover, the Financial Times, citing "insiders close to the presidential staff," reported today that YELTSIN has suffered a stroke, and is unable to work for more than 15 minutes a day. The stroke reportedly came at around the same time as YELTSIN's third heart attack, between the two rounds of presidential voting, and since then he has been unable to sign any documents. All decrees are being signed by presidential chief-of-staff Anatoly CHUBAIS, it said. How

ever, YELTSIN held a four-hour meeting, including a half-hour stroll, with German Chancellor Helmut KOHL in early September, and he was shown on TV talking animatedly with Prime Minister CHERNOMYRDIN last week. Although the President is clearly in poor health, he does not appear to have been rendered incapacitated or incoherent.

World-renowned US cardiologist Michael DEBAKEY arrived in Moscow today to consult with Russian doctors on YELTSIN's fitness to undergo heart surgery. The surgeons will meet on Wednesday to discuss if and when the Russian President will have the operation.

Comment: The key question, "Is heart surgery for YELTSIN viable?" should be answered this week by the doctors' council. If the answer is `no' then the power struggle will quickly intensify, and a power transfer, including possibly plans for new presidential elections, could be implemented in the near future. In fact, Communist Party leader Gennady ZYUGANOV today accused YELTSIN's team of deceiving voters during the presidential poll and called for him to step down and hold new elections.

If `yes,' the political status quo in Russia could hobble along through the pre-operation and recovery (assuming it is successful) periods. The behind-the-scenes power struggle will continue, but drastic changes will likely be postponed for several months.

Yandarbiyev in the Hospital

· Chechen

Today's News Highlights

Russia

Import Quotas on Alcohol

Tax Exemptions to End

Belknap in Russia

US E&E $1 Million Contract

European Republics

World Bank Loan for Ukraine

Transcaucasia & Central Asia

Ter-Petrosyan Wins Re-election

IDA Loan for Azerigaz

Intl Bank Opens in Georgia

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rebel leader Zelimkhan YANDARBIYEV, 44, was rushed to the hospital suffering from food poisoning on Sunday night, but is in satisfactory condition, reported Interfax. YANDARBIYEV took over the Chechen rebel presidency in April, after Dzhokhar DUDAYEV was killed in a rocket attack.

Both Lebed and Maskhadov Skip Strasbourg

· The parliamentary assembly of the Council of Europe today canceled planned hearings on the August 31 Chechnya peace accord between Russian Security Council chief Aleksandr LEBED and Chechen rebel commander Aslan MASKHADOV, when the two men declined to attend. LEBED, who initially accepted the Council's invitation to speak, later rejected it echoing the protests of Russian government and parliamentary figures who called the hearing interference in Russia's internal affairs. The French Foreign Ministry had said Friday that MASKHADOV has received a visa to go to France, and his reasons for not showing in Strasbourg remain unclear. A Chechen delegation, led by the rebel foreign minister Ruslan NIMAYEV, did arrive however, and will hold talks with the Council.

Economy

Ruble = 5,396/$1.00 (NY rate)

Ruble = 5,389/$1.00 (CB rate)

Ruble = 5,369|5,409/$1.00 (buy|sell rates)

Government to Put Quotas on Alcohol

· The Russian government issued a resolution on Sunday, imposing import quotas on ethyl alcohol and vodka, beginning January 1, 1997, to protect domestic producers reported Itar-Tass. The 1997 import quotas were set at 10 million decaliters (DAL) of vodka and one million DALs of ethyl alcohol from food raw materials. Under the above quotas, the volume of vodka imported from Commonwealth of Independent States (CIS) countries is set at 1.5 million DALs, one million of which will be imported from Ukraine. The importation and free circulation in Russia of ethyl alcohol and vodka without appropriate import licenses will be prohibited from January 1, 1997.

The Trade Ministry will draft regulations on an intergovernmental commission to organize auction licenses to import these products. The draft should be submitted to the government within a month. The Ministry was also instructed to complete consulta

tions with the European Union and the US to fix import quotas for vodka and ethyl alcohol to Russia within the general volume set by the decision.

Yeltsin Ends Special Tax Exemptions

· Russian President Boris YELTSIN signed a decree last week rescinding dozens of exemptions to import and export duties, effective October 1, in an effort to increase budget revenues, reported Dow Jones. Government officials have estimated that the measure will add 5-6 trillion rubles to budget revenues by the end of the year. However, a detailed list of which exemptions are to be abolished has not been completed. A total of about 200 organizations, including veterans groups and the handicapped, currently enjoy duty-free import privileges.

US-Russia Conference in Khabarovsk

· A working forum of the US-Russian Gore-Chernomyrdin Commission in Khabarovsk this week is being attended by delegations from eleven territories, regions, and autonomous areas of the Russian Far East, representatives from the Foreign and Economy ministries, as well as customs officials. The American side is represented by US government agencies, including treasury and customs, as well as various foreign investment corporations, and the states of Alaska, Washington, California, and Oregon. More than 250 business representatives from the Russian Far East and the US states will discuss prospects for cooperation in the sphere of finance, energy, transport services, telecommunications, timber, fishing, and other sectors of the economy. The program includes a conference on the problems of promoting private business. The Russian Far East's trade turnover with the US grew from $270 million in 1994 to $520 million in 1995.

Business

Belknap Seeks Russian Telecom Deal

· Los Angeles-based Belknap Corp. has entered negotiations to install, operate, and maintain a telecommunications system in one of the regions of Russia, reported Dow Jones. A company press release said that the system is expected to begin with 20,000 subscribers, and the equipment will be supplied by US manufacturers of digital wireless networks. Belknap said the system will include telephone, paging, data transmission, voice mail, video conferencing, Internet access, banking system, and

When you need to know it as it happens

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alarm services for local government, commercial, and residential customers. Belknap will also offer a range of Personal Emergency Communications Services, such as vehicle theft prevention and silent alarms for vehicle break-ins. In addition to local calls, Belknap expects to work with international long distance carriers with satellite connection capabilities. Talks are in the preliminary stage.

US E&E Gets $1 Million Contract

· Lancaster, NY-based Ecology and Environment, Inc. (E&E) has been awarded a $1.1 million contract to support the Russian Federation Environmental Management Project, said a company press release on Friday. Under the contract, E&E will focus on Russia's ferrous metals industry which currently is the fourth largest producer of steel worldwide. The release did not say who was paying for the contract.

The three-year project will be managed from the company's Moscow office with support from US operations. During the first year, E&E will produce a ferrous metals environmental action plan and during subsequent years will provide advisory services on the implementation of the plan. The scope of work calls for evaluating methods to: strengthen and streamline federal and regional institutional structures for environmental and natural resource management; improve federal and regional environmental policy and strategy formulation and implementation; and upgrade environmental and natural resource management systems.

dent. It is supposed that agreed amendments to the Constitution will be adopted by the legislature, while outstanding ones will be put on a referendum.

World Bank Loan to Ukraine

· The World Bank on Friday approved a $2.6 million loan to Ukraine to help finance a Social Protection Support Project, said a Bank press release. The program will improve the administration of the government's Housing and Municipal Service Allowance Program (HMSAP) by automating administration and introducing information management systems in the HMSAP offices. It will also support housing and municipal pricing reform and strengthen the government's efforts to develop a social protection system better targeted to low income families. The HMSAP program, introduced in February 1995, aims to secure sustainability of pricing reforms in the municipal service sector. It provides allowances to families whose monthly payments for housing, housing maintenance, water, sewerage services, and other services exceeds 15 percent of monthly income. It is estimated that 4.6 million families may be enrolled in the program by October 1996. The Social Protection Support Project aims to improve the administration of the HMSAP program, and link local and regional administrative offices to the Ministry of Finance. It also includes the installation of hardware and training of staff in system operations. Total project cost is $3.0 million, of which 87 percent will be financed by the loan, and the remainder by the government of Ukraine, local government budgets, and the US Agency for International Development.

Transcaucasia and Central Asia

Ter-Petrosyan Wins Re-election in Armenia

· Incumbent Armenian President Levan Ter-Petrosyan was re-elected on Sunday for another five-year term with 55 percent of the vote, according to preliminary returns cited by Iusik Lazaryan, head of the ruling Armenian National Movement Party in Yerevan today. Ter-Petrosyan's main rival, Vazgen Manukyan, received approximately 35-37 percent of the votes, LAZARYAN told reporters. The other two contenders, communist Sergei Badalyan and Ashot Manucharyan polled five and less than one percent of the votes, respectively, he said. The Central Electoral Commission estimated that some 55 percent of voters turned out.

European Republics

Belarus Leg. Tries to End Constitution Tussle

· The Belarussian parliament passed a resolution on Friday asking President Aleksandr Lukashenko and a group of deputies to withdraw their draft amendments and addenda to the country's Constitution, to be placed on planned November referenda. The requests are an attempt to find a political compromise to end the power struggle in Belarus. The President and some parliamentary factions have called for separate referendums on amendments to the constitution, aggravating relations between the executive and legislature. If the two draft amendments to the fundamental law are withdrawn, parliament hopes to create a conciliation constitutional commission on parity principles with the presi

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MANUKYAN and his supporters are claiming victory for themselves and asserting that massive falsification took place on behalf of Ter-Petrosyan, reported Western news agencies. Lazaryan, while admitting that some election violations occurred, said that "elections were on the whole orderly," according to Itar-Tass. Also, Interfax cited Joseph BAIDA, an election observer from the Organization for Security and Cooperation in Europe (OSCE) as saying that no serious violations took place.

IDB Signs Agreement with Azerbaijan

· An international investment conference ended in Baku on Saturday with the signing of a joint communiqué outlining the principles of cooperation between Azerbaijan and the Islamic Development Bank (IDB), reported Itar-Tass. The one-day conference, "Investment Prospects in Azerbaijan," was attended by IDB President Ahmed Muhamed Ali, three IBD executive directors, and 160 representatives of business circles from 17 Islamic countries. Azeri President Geidar Aliyev told participants that this agreement provides a sound basis for cooperation and invited the IDB and Islamic businesses to invest in his country's economy.

Azerbaijan Issues T-Bills

· Azerbaijan earned 4.87 billion manats ($1.15 million) for the government budget on Friday in the country's first issue of Treasury bills, reported Reuters. The one-month T-Bills were auctioned at an average discount of 7.58 percent, producing an average annualized yield of 31.18 percent, said the National Bank. Azerbaijan has huge oil reserves, but lags behind other countries in financial and market development. There is a rudimentary two-tier banking system, with nearly 250 small banks. Although parliament has passed a law on securities, there are no stock exchanges or investment funds.

Azerbaijan Secures World Bank Gas Loan

· Azerbaijan will receive a $20.2 million credit from the International Development Association (IDA) of the World Bank to help finance a Gas System

Rehabilitation project, said a World Bank press release. The Azeri gas distribution network extends to over 80 percent of the population, but the transmission and distribution sub-sectors need substantial investment for modernization and rehabilitation. This project aims to reduce expenditures on pipeline replacement through the restoration of cathodic protection systems. In addition, it will increase efficiency of gas use with incentives created by the introduction of effective metering, and reduction of gas leakage due to replacement of corroded or damaged pipe. The project will also facilitate state gas company Azerigaz's transition to a commercially based operation, and will support the development of a legal and regulatory framework in the sector.

International Bank Opened in Georgia

· The Greek Commercial Bank and the European Bank for Reconstruction and Development (EBRD) have established the International Commercial Black Sea Bank-Georgia, Georgia's first international bank, reported Finansoviye Izvestia (No. 89). The bank has equity of $3 million. The share of the Greek partner in the bank is 51 percent, the EBRD 20 percent, and the Georgian Allied Bank 29 percent.

The new bank will offer various services on international payments to local companies. It is the first joint venture established under an agreement between the EBRD and the Greek bank on the expansion of the latter's activities in the Black Sea and Balkan region, including Moldova and Armenia. The Greek bank will invest $43.5 million; the EBRD $15 million.

Updates

Chechnya: Russia resumed the withdrawing its army from Chechnya on Saturday with the departure of the Interior Ministry's 276th Motorized Rifle Regiment to its permanent base in the Urals. The pullout was suspended last week after a dispute over the exchange of prisoners between the Russian military and the Chechen rebels. The dispute was later resolved by Russian Security Council chief Lebed.

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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