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 30, 1996

Rostov, Leningrad Election Results

· The preliminary results of Sunday's gubernatorial elections in Russia's Rostov and Leningrad Oblasts indicate that one government-backed and one communist-backed candidate have won. Early returns from Rostov show incumbent Vladimir Chub has received 62 percent of the vote, defeating Communist candidate Leonid Ivanchenko, who captured only 32 percent, reported Russian Public Television (ORT) today. Communist Party leader Gennady ZYUGANOV said that IVANCHENKO lost because the elections were rigged, reported Russian Television (RTV). IVANCHENKO was the region's Soviet-era boss.

In the Leningrad region, incumbent governor Aleksandr BELYAKOV has reportedly lost to leftist challenger Vadim GUSTOV by about 21 points. GUSTOV said that he plans to change the majority of regional district directors because most of them backed BELYAKOV. The incumbent blamed his loss on low voter turnout, but reportedly he was unpopular due to the poor economic conditions in the region.

Russian President Boris YELTSIN today appointed Aleksandr TSAPIN as head of Voronezh Oblast, which is located on the Ukrainian border, said the presidential press service. YELTSIN also ordered that gubernatorial elections be held in the Kurgan and Magadan Oblasts and the Buryat autonomous district in November, as well as in Chelyabinsk, Vladimir, and Khabarovsk Oblasts in December.

Russian Federation

Politics

More Calls for Yeltsin to Step Down

· Three Russian politicians who are rarely in agreement—Security Council secretary Aleksandr LEBED, Communist Party leader Gennady ZYUGANOV, and former Soviet President Mikhail GORBACHEV—this weekend all called for President Boris YELTSIN to resign temporarily in light of his impending multiple bypass surgery. Responding to a question on whether YELTSIN's protracted absence from the Kremlin poses a threat to national security, LEBED told Moskovsky Komsomolets on Saturday: "Once you get sick, you hand over your authority... Otherwise this unclear situation comes about: First there is a president, then there isn't..."

On Sunday, GORBACHEV told Interfax that YELTSIN should resign and allow new elections to be held. " To work just several hours a day is totally unacceptable. It is not for this role that we elected a president with immense constitutional powers."

"It would be good for YELTSIN himself, for his family, and for the country as a whole if he steps down," ZYUGANOV told a press conference today, according to the Associated Press (AP). The opposition leader suggested that YELTSIN's absence will lead to debilitating power struggles within the Kremlin and said that remaining in office during his prolonged illness violates the constitution.

However, YELTSIN has been holding meetings with various government ministers, taking decision, and signing decrees from his hospital bed. Barring unforeseen problems, it appears unlikely that he will deviate from his original plan of turning over power to Prime Minister Viktor CHERNOMYRDIN for only a few days while he undergoes surgery.

Today's News Highlights

Russia

False Bomb Threat on Aeroflot

Shares for Loans Decision

World Bank Loan for Russia

Nokia Gets Russia Order

Sakha President in the UK

Roper Systems and Gazprom

Transcaucasia & Central Asia

Ter-Petrosyan Declared Winner

Kyrgyz Securities Program

Kyrgyzstan Gets Oil Refinery

Politics-Economics-Business

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Monday

September 30, 1996

Intercon's Daily

False Bomb Threat on Aeroflot NY Flight

· An anonymous caller warned of the presence of a bomb on an Aeroflot jet on a flight from New York to Moscow forced the return of the plane to Kennedy airport on Friday, a US security official told Itar-Tass. The Russian airliner landed at Kennedy, the 133 passengers and 13 crew members were evacuated, and a special police team thoroughly examined the plane. No bomb was discovered and the plane continued on to Moscow.

Economy

Ruble = 5,408/$1.00 (NY rate)

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

Ruble = 5,387|5,417/$1.00 (buy|sell rates)

Shares for Loans Stock to be Released

· The Russian government has decided to allow banks that won stakes in major companies last year under the shares-for-loans privatization program to sell the blocks of shares that they are managing on behalf of the state, as of September 1. The controversial program originally called for the government to buy back the stakes by September 1, or the banks would be free to sell them, but several State Duma deputies and government officials called for the deadline to be moved to March 1, 1997.

On Friday, First Deputy Prime Minister Vladimir Potanin and Security Council Secretary Aleksandr Lebed sent a letter to President Yeltsin with a joint proposal which essentially confirmed the right of the banks to sell the blocks as of 1 September, but required them to do it under state control, said Saturday's Kommersant-Daily. According to the newspaper, fears of discontent among banking circles and the public played its role in the decision to resolve the conflict over the shares-for-loans program in this way.

At the end of August, Lebed wrote to Yeltsin with a proposal to move the date March 1997, and the president responded by tasking the government and the Security Council to jointly draw up a proposal. The new joint proposal stresses that sales of the government stakes should take place under the strict control of the government (it should be notified about each sale at least three months in advance); the auctioning should be free and open; and the share

of money [from sales] due to the federal budget should be transferred there immediately, said Kommersant-Daily. The blocks of Norilsk Nikel and the North West River Shipping Lines cannot be sold to foreign investors. The blocks of the oil companies (Lukoil, Yukos, Sidanko, Sibneft, and Surgutneftegaz) can be sold to anyone, but only in such a way that foreign capital does not hold more than 15 percent of all the shares. It was proposed that limitations on sales to foreigners of the Novorossiisk shipping lines be determined at a later date in talks between the government, the Security Council, and the holders of the shares. The letter also says that banks managing state shares which decide not to sell their blocks of shares must guarantee "effective management of them" (the government and the Security Council will be jointly keeping tabs on it), said the newspaper.

This solution, although certainly not allowing the banks a great deal of freedom, steps well short of strident calls for the government to break the shares-for-loan agreements and take back the shares.

New World Bank Loans for Russia

· Russian First Deputy Prime Minister Vladimir Potanin and World Bank Vice-President Johannes Linn signed two loan agreements in Washington, DC on Sunday granting $159 million to Russia, said a World Bank press release. In addition, LINN and Russian Ambassador to the US Yuli VORONTSOV signed agreements on two Global Environment Facility (GEF) grants worth $80 million. Potanin is leading the official Russian delegation attending the annual meetings of the World Bank and the International Monetary Fund (IMF). The delegation also includes Finance Minister Aleksandr Livshits, Central Bank chairman Sergei Dubinin, and Economics Minister Yevgeny Yasin.

The Capital Markets Development Loan ($89 million) intends to support the development of capital markets in Russia. The loan aims to help improve the regulatory infrastructure for capital markets and eliminate information and contractual uncertainties, thus reducing high transaction costs. Included in the loan agreement are measures to improve the efficiency, transparency, and systemic stability of secondary market trading, clearance and settlement, and share registration systems.

When you need to know it as it happens

Politics-Economics-Business

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Monday

September 30, 1996

Intercon's Daily

The Energy Efficiency Loan ($70 million) will support Russia's efforts to improve the efficiency of energy use in several parts of the country. It will finance the purchase of energy-efficient equipment by major gas consumers in 10 cities—St. Petersburg, Vladimir, Voronezh, Nizhny Novgorod, Rostov-on-Don, Ryazan, Samara, Saratov, Stavropol, and Cherepovets—and studies to support policy reform in Russia's gas sector.

Grants for an Ozone-Depleting Substances (ODS) Phase-out Project ($60 million) and a Biodiversity Conservation Project ($20.1 million) will help Russia in phasing out ODS and in maintaining optimum levels of biodiversity in the environment.

Business

Nokia Wins New Russia Order

· Finnish telecommunications group Nokia Oy announced today that it has been awarded an order worth $15 million to provide switching technology to several Russian cities. "Multiregional Transit Telecom of Russia and Nokia Telecommunications have signed a frame agreement for the supply of Nokia's NMT 450 MTX switches to Russia during 1996-97," said a Nokia statement, cited by Reuters. NMT (Nordic Mobile Telephone) is an analogue mobile communications system. "NMT 450 technology is a suitable and cost-efficient system for our country," Multiregional president V. GURKIN said in the Nokia statement. Multiregional Transit Telecom is a Russian company offering transit connections for nationwide cellular networks.

Sakha President Concludes Deals in UK

· Mikhail Nikolayev, President of the northeastern Siberian Republic of Sakha (Yakutia), signed a package of investments projects and a number of agreements on direct capital investments in the region's economy and untied credits totaling about $1 billion during a trip to Great Britain. "We intend to use the received financial resources first of all for the development of the diamond and gold extracting industry, as well as the power engineering," he told Itar-Tass in an interview.

The Sakha delegation had a number of meetings with representatives of the largest banks of the US, Britain, and Ireland, as well as the European Bank for Reconstruction and Development (EBRD), which

led to agreements on funding for a number of prospective projects on gold extraction and the development of diamond deposits in Sakha. "The diamond branch of Yakutia will receive $650 million in the near future, which will allow it to modernize equipment in some diamond tubes, as well as strengthen the diamond cutting industry in the republic," said Nikolayev. According to him, "very big capital investments will be made in gold extraction branch in the next two years."

Canadian Radio Equipment to Yakutsk

· International Radio of Canada will provide the Sakha national radio broadcasting corporation in the northeastern Siberian Republic of Sakha (Yakutia) with an expensive aerial, servicing the AsiaSAT network, to receive direct broadcasts from overseas, reported Itar-Tass. An agreement was signed Friday in Yakutsk for the two sides to develop cooperation in the field of radio broadcasting, exchange of materials for radio programmes, delegations, and training of radio personnel on a mutually advantageous basis. International Radio of Canada has been cooperating with 20 Russian cities, but the AsiaSAT aerials are being installed in five Russian cities only—Kaliningrad, St.Petersburg, Moscow, Yakutsk, and Vladivostok.

Roper Systems to Gazprom

· The US Import-Export Bank on Friday approved $151 million in financing guarantees for Russian gas monopoly Gazprom's purchase of US Roper Industries control systems over five years, said a Roper press release. The deal is expected to be finalizing within 90 days now that the guarantees are in place.

The materials will be provided by Compressor Controls Corporation (CCC), a subsidiary of Roper, which has been involved in a pipeline retrofit project with Gazprom since 1993. The supply has run into financing problems in the past, and had been waiting for this guarantee from the Bank to secure continuation of the project in the long-term. Roper is an international manufacturer of fluid handling and industrial control products. CCC is also involved with Ukrainian Sumy Machine Building Plant, the major supplier of compressors to Gazprom. In November1995, the CCC announced that it had received orders for projects at plants in Siberia and Kazan, which were scheduled for completion in 1996.

When you need to know it as it happens

Politics-Economics-Business

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Monday

September 30, 1996

Intercon's Daily

Transcaucasia and Central Asia

Ter-Petrosyan Officially Named Winner

· On Sunday, Armenia's Levon Ter-Petrosyan was officially announced the winner of the September 22 presidential elections by the Central Electoral Commission, reported Itar-Tass. The final results showed that 51.75 percent of the electorate were for Ter-Petrosyan and 41.29 percent voted for opposition leader Vazgen Manukyan. Communist candidate Sergei Badalyan got 6.34 percent of the vote, while Ashot Manucharyam, the leader of the Scientific, Industrial and Civil Union, received only 0.6 percent. Manukyan had a lead in the capital Yerevan, where 55,100 voted for him. Ter-Petrosyan won in most other regions of Armenia.

Central Electoral Commission chairman Khachatur Bezirdzhyan denied the reports that Commission member Filaret Berikyan, who represents the opposition National Democratic Union, had been arrested, said Itar-Tass.

However, Armenian Prosecutor-General Artavad Gevorkyan has signed a warrant for the arrest of five parliamentary deputies, charged with involvement in the mass rioting in Yerevan, last Wednesday and attempting a "state coup," reported Xinhua today. Speaking on national television overnight, Gevorkyan identified the five as Ruben AkopYan, Shavarsh KocharYan, David VardanYan, Seiran AvagYan, and Arshak SadoYan. In addition, the parliament has stripped parliamentary immunity from Paruir AirikYan, Nerses ZeynalvadYan, and Vazgen ManukYan. All have been detained already, except SadoYan.

The rioting followed charges by the opposition that the election was unfair and TER-PETROSYAN has not actually defeated MANUKYAN. International observers reported some cases of fraud and intimidation at polling places, but said these did not appear to be systematic, said the Associated Press (AP). The electoral commission has refused a recount.

Kyrgyzstan to Build Securities Market

· The Kyrgyz government committed to developing financial markets in the country by approving a three-year plan to promote the domestic securities market and attract local and foreign investors. "We hope to create by 1998 favorable conditions for investors and attract people's savings to the economy," State Securities Agency head Dzhon DZHAPARKULOV told Reuters. The government hopes to attract small private investors by issuing a state investment loan backed by shares of privatized companies. Proceeds from these loans would then be used to modernize the companies. Kyrgyzstan also plans to abolish taxes on revenues from local investment funds and operations of the securities market.

Currently, the market is controlled by the National Bank, the State Property Committee, and two ministries, but soon will be coordinated by a single commission accountable to the president—a change made to "ensure investors' balance of interests," said DZHAPARKULOV. The program will also toughen requirements for capital market participants and outline rules for investment banks to ensure payments on operations with securities.

Kyrgyzstan Set to Open Refinery

· Kyrgyzstan will open its first oil refinery—capable of processing 500,000 tons of crude per year—this week, reported Reuters. The facility is located in Jalalabad, 150 miles south of Bishkek, and will be formally commissioned on October 5. The new refinery will meet about one-quarter of annual domestic demand in Kyrgyzstan, which currently imports all of its refined oil. Half of the output from the refinery will be heavy fuel, 38.5 percent diesel fuel, and 12 percent gasoline. It also plans to produce jet fuel. Kyrgoil, a Canadian-based joint venture between Trans Hydrocarbon and the Kyrgyz government, invested over $24 million in helping to build the plant. The joint venture signed a deal in December giving it exclusive rights to build and operate refineries in Kyrgyzstan, as well as to rework existing oil wells and drill new ones in the Fergana Basin.

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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