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 6, 1996

Russian Federation

Politics

More on Yeltsin Heart Surgery

· A senior Russian surgeon told Interfax today that President Boris Yeltsin will undergo a heart bypass operation at Moscow's Cardiology Center. Professor Valery SADRIKOV, deputy director of the surgical center of the Academy of Medical Sciences said that the operation will be carried out by Dr. Yevgeny CHAZOV, the head of the Cardiology Center. A world-renowned specialist, it was CHAZOV who kept the ailing Soviet leader Leonid BREZHNEV alive for nearly a decade, while keeping his condition a secret from the Soviet people and the world. CHAZOV told Interfax today that a council of doctors will determine whether YELTSIN was in good enough condition to undergo surgery.

According to the Russian Constitution, "the president of the Russian Federation stops exercising his duties early if he resigns, shows a lasting inability to carry out his responsibilities due to bad health, or if he is impeached." However, the document contains no procedures on how to determine whether the president is unable to fulfill his duties due to health reasons. In the event that the president can no longer govern, says the constitution, the prime minister takes charge of the country for three months, at which time new presidential elections are held. Russian Communist leaders today called for power to be handed off to Prime Minister Viktor CHERNOMYRDIN both during and after the operation, reported United Press International (UPI).

Russia is entering a new period of uncertainty over its political leadership. Various forces have already begun to jockey for position, readying themselves for the contingency that YELTSIN can no longer govern the country. These circumstances, coming so closely

on the heels of an anxiety-ridden presidential election campaign, can only negatively effect Russia's struggling economy and society.

Christopher Presents Russia-NATO Plan

· US Secretary of State Warren CHRISTOPHER today unveiled the details of a plan to make Russia a full partner of the NATO alliance, reported United Press International (UPI). In a speech in Stuttgart to set out America's vision of an "New Atlantic Community," Christopher proposed a formal charter to create standing arrangements for consultation and joint action between NATO and Russia.

A charter is needed "because we share an interest in preventing armed conflict," weapons proliferation, nuclear smuggling and the specter of atomic disasters like Chernobyl," he is cited by UPI as saying. "The charter should give us a permanent mechanism for crisis management so that we can respond together immediately as these challenges arise."

CHRISTOPHER reiterated Washington's view that an expanded NATO incorporating former Communist countries would be the guarantor of Western security. Russia wants the Organization for Security and Cooperation in Europe (OSCE), rather than NATO, to be the guarantor of European security.

Two Generals Killed in Helicopter Crash

· Six people, including two Russian generals, were killed on Thursday in a military helicopter accident in eastern Siberia, reported Xinhua.

Today's News Highlights

Russia

Grain Harvest Seen at 75 Mln

ASKO Undergos Restructuring

Bus. Opps. Outside Moscow

Cessna Marketing in Russia

European Republics

IBM in Estonian Postal Deal

Transcaucasia & Central Asia

US Co. in Georgia Port Upgrade

CIOC Gives Survey Contract

British Gas to Cut Kazakh Stake

Politics-Economics-Business

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Friday

September 6, 1996

Intercon's Daily

Ruble = 5,361/$1.00 (NY rate)

Ruble = 5,356/$1.00 (CB rate)

Ruble = 5,336|5,376/$1.00 (buy|sell rates)

countries. Eleven licenses for investing $166 million dollars were for operations in the US and nine licenses worth $77 million were to be used in Britain. Large Russian investments are also going into Poland, China, Turkey, Finland, and Cyprus.

Grain Harvest Seen At 75 Million

· Russian First Deputy Agriculture Minister Vladimir SHCHERBAK forecast on Wednesday that Russian grain production will reach 75 million tons this year, up from a disastrous harvest of 63.5 million tons in 1995, reported Interfax. The output is expected to be sufficient to meet domestic demand and to provide some exports, probably to other former Soviet republics, he said. Imports will be necessary in the Far East, because the cost of shipping grain across Russia is prohibitive.

Business

Major Russian Insurance Co. Restructuring

· Russia's largest private insurance company ASKO will complete a restructuring program by the end of this year which is expected to increase sales by 30-40 percent (1.5-2 billion rubles) a month in 1996, reported Reuters. ASKO general manager Aleksandr BUNISHKIN told a press conference today that Russian commercial bank Suprimexbank acquired ASKO in the spring and began the restructuring. The company reduced the number of managers by 80 to 230, cutting costs by 40 percent he said. It also plans to train at least 10,000 agents and has increased its charter capital 25-fold to 49.9 billion rubles. ASKO will concentrate on property and cargo insurance, liability insurance, re-insurance, medical insurance, and life insurance. The funds saved by cutting costs will be used to offer discounts for both individuals and corporations, said BUNISHKIN.

Cessna Markets in Russia

· US Cessna Aircraft Co., a unit of Textron, presented its new Citation VII business jet to officials of leading Russian oil and gas companies and large banks on Wednesday in Moscow, saying the market in the country was "very promising," reported Reuters. Currently, there are a total of only 15 business jets in Russia. An official of a private charter company told Reuters that his firm was very interested in purchasing the Citation VII to attract new clients. It is more expensive but more luxurious than its Russian counterparts, he said.

Apr May Jun Jul Aug Sep

Lt.-General Dmitri Kutsekon, commander of the 23rd Air Army, and the Army's Chief of Staff, Major-General Boris Batura died when their MI-8 helicopter crashed in the country, 117 kms from the city of Chita. The cause and details of the crash are unknown, but Russian Defense Minister Igor Rodionov has ordered a special team to investigate the accident.

Economy

CB on Russian Investments Abroad

· According to Russian Central Bank figures, direct and portfolio foreign investment by Russian residents, with licenses from the Central Bank, totaled $416 million between March 1993 and March 1996, reported Itar-Tass. During this period, the Bank issued 165 licenses for making direct and portfolio hard currency investments abroad to Russian residents. Sixty-five of these licenses were granted in 1995. The volume of the invested foreign currency rose from $63 million in 1993 to $278 million in 1994 and $365 million in 1995.

The largest projects that were cleared by the Central Bank to export capital involved Lukoil oil conglomerate ($128.6 million), Russian gas monopoly Gazprom ($108.2 million) and Surgutneftegaz oil company ($86.6 million).

Russian capital flowed mainly to Germany, the US, and Britain. The Central Bank issued 21 licenses for the investment of a total of $295 million in these

When you need to know it as it happens

Politics-Economics-Business

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Friday

September 6, 1996

Intercon's Daily

Doing Business Beyond Moscow

· The US Embassy in Moscow released a report this week highlighting business opportunities in Russia outside of the Moscow area. The report provides a list of Russian regions with outstanding market potential based on the following criteria: political climate; industry development and potential; present and potential wealth; population size; business support availability; and access to ports and adjacent markets.

St. Petersburg and Vladivostok were found to be good entry points for market expansion in European and Eastern Russia. Both cities have ports, a substantial Western business presence, US consulates, US Foreign Commercial Service offices and American Business Centers. St. Petersburg, with a population of five million, is the second largest market in Russia. The St. Petersburg region (Leningrad Oblast), with a population of 1.8 million, is the country's second largest industrial center. Petersburg attracted $154.7 million in foreign investment in 1995. Vladivostok is the capital of Primorsky Krai, with a population of two million. Due to its distance from European Russia, the region imports 70 percent of its ready-made consumer goods and has attracted substantial foreign investment. The region is a major center of the mining, metallurgy, timber and wood processing, chemical and fishing industries.

Nizhny Novgorod, Krasnodar Krai, and Samara Oblast could serve as valuable sites for market testing and later expansion. Nizhny Novgorod Oblast, with a population of 3.7 million, has been a model of market reform under Governor Boris NEMTSOV. The region offers opportunities for companies of all sizes in the areas of aerospace, automobiles, chemicals, agriculture, retail goods, and electronics. Foreign investment in Nizhny Novgorod reached $59.8 million last year. Krasnodar, with a regional population of five million, offers opportunities for tourism and agriculture. The area includes the Black Sea resort city of Sochi, which boasts a completed Radisson Hotel. Foreign investment was $69.7 million in 1995. The Samara region is attractive because of its strong aerospace (in Samara) and automobile (in Togliatti) industries. The regional government is open to Western involvement and is actively seeking strategic partners, suppliers, and subcontractors for manufacturing ventures.

European Republics

New CIS Anti-Crime Database

· The CIS special services have created a joint anti-crime database, reported Itar-Tass on Wednesday. The database was created by Russian specialists in conjunction with their colleagues from other countries. It will allow special services to "make exchanges of documentary, audio and video information more mobile" and facilitate their fight against organized crime. The creation of the database was discussed by CIS special services' representatives at a two-day meeting in Moscow this week, pursuant to a cooperation agreement signed on May 31, 1995.

IBM Signs Contract with Eesti Post

· US computer giant IBM has signed a contract with the Estonian postal service (Eesti Post) to provide a computer information system covering the whole country, reported Newsbytes. The $3.3 million system will consist of three main applications—Concorde Financial, the Postal Counter application, and the AvaPost address information system. Hardware to be delivered includes 15 IBM RS/6000 servers and almost 200 IBM point of sale terminals and workstations. IBM will install the system with the help of subcontractors Avancer Oy, and Columbus International A/S. The system should be up and running by the end of the year. Eesti Post CEO Tarmo-Jaan Toeleid said that the system will

Computer Trade Mission to

Novosibirsk and Yekaterinburg, Russia

October 21-25, 1996

The US Department of Commerce is inviting

US companies to take part in a computer

hardware, software, networking,and services

trade mission to Novosibirsk and Yekaterinburg.

The mission is designed to bring US company

representatives together with key decisionmakers

in the computer markets of Novosibirsk and

Yekaterinburg. Prearranged individualized business

meetings will be set up with appropriate Russian

contacts to help participants meet business goals.

For more information and an application package,

Contact: Daniel Valverde

(Tel) 202-482-0573; (Fax): 202-482-0952;

(E-mail) daniel_valverde@ita.doc.gov

Deadline: September 13, 1996

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Politics-Economics-Business

When you need to know it as it happens

Friday

September 6, 1996

Intercon's Daily

Caspian Geophysical Gets New Contract

· The Azeri-American joint venture Caspian Geophysical has won a tender for a contract to survey the Karabakh oilfield in the Azeri section of the Caspian Sea, reported Itar-Tass. The Karabakh deposit is being developed by a major international consortium, the Caspian International Oil Company (CIOC). The CIOC signed a contract with the Azeri state oil company SOCAR in November 1995 to prospect and develop the Karabakh sector. The survey contract was awarded last Wednesday at the first meeting of the CIOC managing committee.

In 1997, the consortium is expected to invest about $35 million dollars in the project, with some $6 million earmarked for geophysical studies in the bottom oilfield. The meeting also approved the company's structure. Russian oil conglomerate Lukoil's Vladimir Zazirny has been appointed managing committee chairman. Lukoil has a 32.5 percent stake in the oil project, while US Pennzoil and Italy's Agip have 30 percent each, and SOCAR holds 7.5 percent. The oilfield has estimated reserves of 85 million tons of oil and 18 billion cubic meters of gas.

British Gas to Cut Karachaganak Stake

· British Gas is seeking to sell a portion of its 42.5 percent stake in the Karachaganak gas field project, being developed under an $8 billion production-sharing agreement with Kazakhstan, reported Financial Times today, citing an oil industry newsletter. FSU Energy said that British Gas was looking to scale down its foreign operations, but would retain some long term commitment in Central Asia.

The other partners in the consortium developing Karachaganak are Italy's Agip, with 42.5 percent, and Russia's Gazprom, with 15 percent. The field is believed to have 566 billion cubic meters of natural gas reserves, but the project has been plagued with bureaucratic and political difficulties. Nonetheless, US Texaco and Mobil, already big players in the region, have reportedly expressed interest in acquiring part of the British stake in the project.

enable the post office to increase processing volume without increasing personnel. He added that the system will expand along with postal services. The project is IBM's largest in Estonia to date.

Transcaucasia and Central Asia

US Firm to Upgrade Georgian Ports

· The Georgian International Oil Company (GIOC) and US Transoceanic Shipping Company said on Thursday that they would form a joint venture to expand the capacity of Georgia's Black Sea ports, reported Reuters. "This is a large project which involved the reconstruction of Georgia's ports at Poti and Batumi so that they can be used for bringing in shipments for oil companies in Central Asia and the Caspian Sea areas," Transoceanic vice-chairman Arval HANDRICK said at a joint press conference with GIOC President Gia CHANTURIA. The joint venture aims to increase Poti's capacity from six million tons of dry cargo per year to 14 million tons over the next 18 months. The port may eventually handle 40 million tons per year, said CHANTURIA. The ports will be used to handle dry cargo for major regional energy projects, as well as for the transit of Central Asian and Caspian oil. The Azerbaijan International Operating Company (AIOC), the consortium developing three major oilfields in the Azeri section of the Caspian, began importing equipment for its project through Georgian ports earlier this year. The AIOC also plans to rehabilitate an oil pipeline between Baku and Georgia to export a portion of its early oil output.

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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