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

Tuesday, October 1, 1996

Russian Federation

Politics

Update on Army Spending Problems

· During a meeting at Moscow's Central Clinic Hospital today, Russian President Boris YELTSIN told Prime Minister Viktor CHERNOMYRDIN to pay particular attention to funding the Russian military. Meanwhile, Defense Minister Igor RODIONOV told a press conference today that the army was in desperate need of assistance to extract it from the current financial crisis. "I appeal to society, the president, the government, and parliament. We must find a way out of this extremely difficult and critical situation which the army is in today because of the lack of funding," he is quoted by Reuters as saying. He called for the state to make good on wage arrears, adding "The situation is becoming unbearable." However, he denied the possibility that the army is close to a mutiny, as suggested last week by Security Council secretary Aleksandr LEBED, but said that combat readiness had been affected. "The Defense Ministry regards the situation as controllable and manageable but the armed forces are going through a period of sharp crisis."

Rodionov also announced that Russia's newly-established Defense Council will discuss the pressing problems of the military at its first meeting on Friday, October 4, reported Itar-Tass. Chernomyrdin will chair the meeting, he said.

Russian Liberals Form Coalition

· On Monday, representatives of seven Russian political groups signed an agreement to form a coalition to offer "a liberal alternative to bureaucratic capitalism" and consolidate liberal and right-of-center forces, reported Itar-Tass. The agreement was signed by Yegor Gaidar for Russia's Democratic Choice, Galina Starovoitova for Democratic

Russia, Alexander Yakovlev for the Party of Social Democracy, Irina Khakamada for the Common Cause movement, Sergei Filatov for the All-Russia Union of People's Homes, as well as the leaders of the Congress of National Organizations of Russia and the Agrarian Party. Gaidar said the coalition's first task will be to screen and support candidates in the fall gubernatorial elections.

Chechen Premier Candidate Proposed

· Adam-Shamala Deniyev, a powerful but relatively unknown figure in political circles, has been nominated as a prime ministerial candidate for the future coalition government in Chechnya, reported Xinhua on Monday. Deniyev's name will be forwarded during planned talks in Moscow between the Russian government and Chechen rebels. Chechen rebel leader Zelimkhan Yandarbiyev is expected to visit Moscow later this week to hold talks with Russian Prime Minister Viktor Chernomyrdin to discuss the formation of the Chechen provisional coalition government, its composition, and the relationship between Moscow and Chechnya.

DENIYEV, who had not been in the political limelight until now, "has more weight and wields more hidden levers of control in Chechnya than Yandarbiyev and [Chechen military commander Aslan] MaskHadov put together," said Xinhua, citing Chechen sources. Deniyev "has wonderful ties with the Middle East and Turkey," they added. Deniyev, who was named over the weekend by

Today's News Highlights

Russia

Tatarstan Lobbying Aeroflot

NW Telecom Association

VimpelCom to Issue ADSs

UTC to up Russia Investment

European Republics

Yeltsin Wants Belarus Peace

Transcaucasia & Central Asia

Uzbek Cellular Licenses Given

Uzbekistan Gets $1 Billion

EU Aid for Tajikistan, Kyrgyz

Politics-Economics-Business

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Tuesday

October 1, 1996

Intercon's Daily

Tuesday Tidbit

ment in Chechnya where a truce has not resolved fuel shortages, reported Interfax. Musa Dzhamal-khanov, the acting Prime Minister of Chechnya's pro-Moscow government, told the news agency that settlements in western Chechnya were supplying as much as 10 tons of crude oil daily to amateur refineries in southern villages. He estimated that about one-third of the total was being wasted through the primitive refining process. "Heavy smog covers these villages, outbreaks of skin diseases have been reported. Considerable tracts of land have been contaminated with oil, which may spawn an environmental disaster for local residents," he said.

Chechnya is one of Russia's oldest oil-producing regions, and Grozny is home to an oil refinery and petrochemical industry. But the damage caused by over 20 months of war has led to fuel shortages and the creation of a black market to meet fuel needs.

Russian Population Falling

· The Russian population decreased by 300,000 people in the first seven months of 1996, bringing the country's population down to 147.7 million, reported United Press International (UPI), citing the State Statistics Committee. The Committee attributed the drop to a low birth rate, which it said resulted from a decreasing number of marriages and a rising number of divorces, said the Committee. Although Russia's death rate also fell in comparison to the same period last year, 491,000 more people died than were born between January and July.

The new figures continue a trend that began with the breakup of the Soviet Union and the process of social and economic reform. Housing shortages, unemployment, economic hardship, and a general moral crisis have been cited as contributors to the rising divorce rate. As a result of falling reproduction, the average age of all citizens grew to 36.2 years, it said. On average, 20 percent of Russians are over 65.

Tatarstan Lobbying Aeroflot

· Farid MUKHAMEDSHIN, Prime Minister of Russia's Republic of Tatarstan, will arrive in Moscow today for a meeting with Aeroflot airlines director Yevgeny SHAPOSHNIKOV, reported Russian Public Television (ORT) today. The premier will present a letter from the employees of the Kazan Aviation Production Co. in an attempt to persuade Aeroflot to buy Russian-built airplanes instead of US-made

The St. Petersburg

veterans acting troupe, calling itself

"We Were Born during the Siege," left

today for their first foreign performance. On the

International Day of the Elderly, they received an

invitation to perform at the Russia House in Paris, said

Itar-Tass. The "Music of the Siege" concert includes songs sung at military hospitals and in soldiers' trenches during WWII. This trip will be especially emotional for singer Olga Nesterova, Merited Artiste of Russia, who will cele-

brate her 80th birthday in Paris. Although stage director

Makar Alpatov became an actor in the post-war

years, he was a child of the siege, who, together

with the adults, experienced hunger, cold,

and Nazi shelling. Don't miss this

uplifting event.

the Congress of Public and Political Organizations of the Chechen republic, now heads the public and political organization, the Government of Salvation of the Chechen People. His chances of becoming head of the future coalition government were described as "quite serious" by one of the ministers of the pro-Moscow Chechen government.

Deputies Seek to End Death Penalty

· The Russian State Duma, which convenes Wednesday for its fall session, will soon begin debate on the fate of the death penalty. Deputy Valery BORSHCHEV told Itar-Tass that a bill calling for a moratorium on the death penalty will be introduced this week. Russia pledged to end the death penalty in January when it became a member in the Council of Europe, but the idea is unpopular with many politicians and among the general public. Currently, 466 people are on Russia's death row, said the Associated Press (AP). The abolition of the death penalty is also being resisted in other former Soviet republics that have joined the Council of Europe, including the Baltics.

Economy

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

Ruble = 5,412/$1.00 (CB rate)

Ruble = 5,406|5,418/$1.00 (buy|sell rates)

Chechens Refining their Own Oil

· Chechen rebels are refining oil at hundreds of small plants, threatening people and the environ

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Tuesday

October 1, 1996

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Boeings. SHAPOSHNIKOV announced last month that Aeroflot was purchasing 10 Boeings. The Kazan company is experiencing a financial crisis due to a lack of demand for its aircraft.

The Kazan company recently developed a new plane, the Tu-214, which it is offering as an alternative to Boeings. Previously, SHAPOSHNIKOV has said that the Tu-214, equipped with domestic PS-90A engines, were not competitive and needed to be modernized, said RIA Novosti. However, the report suggested that a compromise could be reached between Aeroflot and Kazan Aviation because the Tu-214 can also be fitted with Rolls-Royce engines. Aeroflot's intention to buy American has angered civil aviation firms across Russia, who have been scrambling to convince the country's largest airline to reconsider, or, barring that, to lobby the government to impose restrictions on aircraft imports.

Business

NW Telecom Firms Form Association

· Ten telecommunications companies in northwestern Russia have founded an association to develop the region's communications infrastructure. "The association members will tackle all issues aimed at developing northwestern areas, including the establishment of a special bank," Vitaly VITMAN, chief executive of Murmanskelektrosvyaz, told Reuters today. Joint projects planned by the association include laying new fiber optic cables and setting up a joint cellular network. The association includes Petersburg Telephone, St. Petersburg's MMT, Pskov's Elektrosvyaz, Cherepovets-Elektrosvyaz, Arkhangelsk's Artelekom, Murmanskelektrosvyaz, Kaliningrad's Elektrosvyaz, Novgorodtelekom, Karelia's Elektrosvyaz, and Vologda's Elektrosvyaz. State-owned telecommunications holding company Svyazinvest manages controlling stakes in all members of the association. Russia's northwestern regions have a total population of more than 14 million.

VimpelCom to Issue ADSs

· Russia's largest cellular telecommunications companies is planning a major share issue in the US and Canada. Vimpel-Communications (VimpelCom or, with its subsidiaries, the Group) announced Monday that it has filed a registration statement with the US Securities and Exchange Commission (SEC)

regarding the concurrent combined public offering of American Depositary Shares (ADSs) in the US and Canada, and ADSs outside the US and Canada, said a company press release. The ADSs are expected to represent 3,920,000 shares of Common Stock. An application will be made to list the ADSs on the New York Stock Exchange.

VimpelCom began full-scale commercial operations in 1994 and is now the largest provider of cellular telecommunications in Russia, marketing its services under the brand name "Bee Line." The Group's primary operating area includes the city of Moscow and Moscow Oblast, which together cover a population of over 15 million people. According to published reports, at the end of July 1996, VimpelCom had a market share in the Moscow area of approximately 59 percent. The Group operates the only Digital Advanced Mobile Phone System (D-AMPS) 800 MHz cellular system in the Moscow area.The Group has also been granted the only license to provide Personal Communications Services (PCS) in the Moscow area. Using D-AMPS and PCS, the Group plans to operate two of the three digital wireless networks in the Moscow area. The Group also holds licenses to operate AMPS networks in six other regions of Russia (Samara, Tver, Vladimir, Novgorod, Ryazan, and Leningrad). The population covered by the Group's combined licenses includes more than 25 million people.

The global coordinators of the offerings are Renaissance Capital Group and Donaldson, Lufkin & Jenrette Securities Corp. The Bank of New York will act as Depositary for the ADSs.

UTC to Increase Investment in Russia

· Hartford, CT-based engineering group United Technologies Corp. plans to increase investments in Russia to $250 million from $125 million in the next few years, a company official in Moscow told Reuters on Monday. UTC subsidiaries Pratt and Whitney (aviation), Carrier, Hamilton Standard, and Otis (elevators) are already active in Russia. "UTC's joint ventures in Russia already employ over 10,000 Russians, making UTC one of the largest joint venture employers outside the energy sector," Reuters cited a company statement as saying. UTC's board of directors were expected to meet in St. Petersburg on Monday, said the unidentified official.

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Tuesday

October 1, 1996

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European Republics

Yeltsin Urges Reconciliation in Belarus

· Russian President Boris Yeltsin has sent a message to Belarus President Aleksandr Lukashenko urging him to work toward a compromise with the parliament, and avoid aggravating the political conflict in the country, reported Itar-Tass. YELTSIN's is only one of many calls for the Belarussian legislative and executive branches to reconcile their differences and cancel plans to try to change the country's constitution. Last week, the Belarus Constitutional Court appealed to Lukashenko and the parliament to withdraw their proposed constitutional amendments, scheduled to be the subject of referenda next month. The court said that hasty and unreasoned constitutional reforms have aggravated the already tense political situation and increased polarization in society. The Council of Europe parliamentary assembly has also called on political forces in Belarus to settle their differences democratically. However, neither side has given any serious indication that it is ready to compromise.

On Saturday, the parliament deprived all state-owned TV and radio company reporters of their parliamentary press credentials and asked them to leave the parliament building, said Itar-Tass. Legislators contended that Belarussian radio and TV reflects only the viewpoint of the president, showing a bias in their coverage of the parliament.

Transcaucasia and Central Asia

Uzbek Licenses for Cellular Telecom

· The Uzbek government has ended Uzbek-American joint venture Uzdunrobita's monopoly over cellular telephone operatorship in the country by deciding to grant licenses to five more companies, reported Business Vestnik Vostoka. Three of the grantees, Rubicon, Uzmaqom, and Coscom, are joint ventures between Uzbekistan and American or Malaysian investors, while the other two are South Korea's Daewoo Central Paging and Indonesia's

Bakrie Group. Rubicon plans to invest $57 million over five years, Daewoo will spend $390 million and plans to have 300,000 subscribers, and Coscom will ask for a $70 million loan from the European Bank for Reconstruction and Development (EBRD) and US banks, while investing $30 million of its own funds. The five new operators will utlize different frequencies. The Uzbek government has placed major emphasis on improving telecommunications in their country, which currently has one telephone for every 15 people. This year, it concluded several deals with foreign firms, including Canada's Northern Telecom Indonesia's Bakrie Group, Telecom Italia, and Germany's Siemens, to upgrade the telecommunications systems in the country.

Investors Send $1 Billion to Uzbekistan

· Foreign investment in Uzbekistan has reached $1 billion so far in 1996, reported RIA Novosti. Farkhad MAKSUDOV, director of the state agency for promoting foreign investment, said 2,200 joint ventures have been set up with foreign capital, 190 of them founded with Russian companies. Until now, most joint ventures with Russian companies have been small and medium-sized ventures, but talks are underway to establish large financial and industrial groups in Uzbekistan. The oil, gas, mineral, construction, and food processing industries, and infrastructure development are priority investment areas.

ECHO Aid for Tajikistan and Kyrgyzstan

· The European Commission has approved a package of ECU 1.42 million ($1.79 million) worth of humanitarian aid for Tajikistan and Kyrgyzstan, the two poorest former Soviet republics, reported Xinhua. The aid, channeled via the European Community Humanitarian Office (ECHO), will enable non-governmental organizations to carry out aid programs over the next six months. In Tajikistan, about 85 percent of the population lives below the poverty line. The two cash-strapped countries have to import all their medical supplies. A typhoid epidemic broke out in Tajikistan recently. ECU 1.1 million is earmarked for Tajikistan and ECU 320,000 for Kyrgyzstan.

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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