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 15, 1996

Lebed Named Chief Negotiator in Chechnya

· Russian President Boris YELTSIN on Monday named Security Council secretary Aleksandr LEBED to head a Russian commission which will hold further peace talks with Chechen rebels, said the presidential press service. The move appears to signify approval for LEBED's peace initiatives in Chechnya, including an agreement signed with Chechen rebel military commander Aslan MASKHADOV on August 31, which has been harshly criticized by Interior Minister Anatoly KULIKOV, several State Duma deputies, and others.

In addition to LEBED, the 17-member commission on resolving the situation in Chechen includes the heads of Russian regions which border on Chechnya and federal government representatives.

Hardline Communists Form New Party

· Several radical communist parties in Russia on Sunday created a new movement—Union of Soviet Socialist Forces of Russia, which aptly goes by the initials USSR, to serve as an alternative to the mainstream Communist Party and fight for the restoration of the Soviet Union, reported Interfax. The group plans to work for the "return of power to the working people," the nationalization of privatized property, and the abolition of the presidency. It is made up of Viktor Tyulkin's Communist Workers' Party, Aleksei Prigarin's Communist Party-CPSU, Stanislav Terekhov's Officers' Union, and Vladimir Grigoryev's Working Russia

Russian Federation

Politics

Lebed Endorses Korzhakov for Duma

· Speaking at festivities devoted to the 850th anniversary of the Russian city of Tula on Sunday, home-town boy and Security Council chief Aleksandr Lebed urged residents to support Aleksandr Korzhakov in his bid to take over LEBED's former Tula Oblast parliament seat. "I very much hope and am counting on your help and participation in making a worthy choice," said Lebed, gesturing toward Korzhakov. "With God's help we will liquidate the stupidities of the past."

LEBED's endorsement of KORZHAKOV, the former chief of the President Security Guards (SBP), was expected. The two have clearly been in the process of forming a political alliance for the past few weeks. Analysts believe that LEBED is seeking to gain financial backing for a presidential bid through KORZHAKOV, who in turn wants LEBED's help to revive his political career. However, it will be several months yet before it will be known whether LEBED's popularity has succeeded in carrying Korzhakov to the State Duma. RIA Novosti reported last week that the Central Electoral Commission had scheduled the Tula by-election for February 9, 1997.

It also seems likely that LEBED would like to use some of the compromising information on Kremlin insiders, supposedly held by Korzhakov. During a press conference on Saturday, KORZHAKOV said he would turn over the evidence, gathered over the 11 years that he led Yeltsin's security detail, to his

successor, who has not yet been appointed. Furthermore, KORZHAKOV could be seeking parliamentary immunity to protect him against corruption charges, leveled against him by former Russian Sports Fund chairman Boris FYODOROV.

Today's News Highlights

Russia

Privatization Revenues Low

NEC in Nizhny Novgorod

Chase in on Sakhalin-2

IDC Opens Moscow Office

Russians Learn Managed Care

European Republics

Ukraine Hryvnia Liberalized

Transcaucasia & Central Asia

French FM in the Caucasus

New Kazakh Appointments

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Intercon's Daily

Party. The party heads all became co-chairman of the new organization.

Turkmenistan's Niyazov in Moscow

· Turkmen President Saparmurat Niyazov met with his Russian counterpart Boris YELTSIN and Prime Minister Viktor CHERNOMYRDIN at Barvikha today to discuss bilateral relations. The two sides discussed the export of Turkmen natural gas to Russia in 1997 and Russia's current gas debt to Turkmenistan of around $500 million. They also discussed the situation in Afghanistan; Turkmenistan is the only Central Asian country that has not joined Moscow in condemning advances by the Islamic Taliban militia. Niyazov was the only Central Asian leader who did not attend a summit on October 4 in Almaty to discuss a common CIS strategy for Afghanistan.

Economy

Ruble = 5,436/$1.00 (NY rate)

Ruble = 5,434/$1.00 (CB rate)

Ruble = 5,429|5,439/$1.00 (buy|sell rates)

GNP Declines Six Percent in Jan-Sept

· Russia's gross national product (GNP) fell by six percent to 1,609 trillion rubles during the first nine months of 1996, compared with the same period in 1995, according to the State Statistics Committee, reported PRIME-Tass. The GNP increased by two percent in September, compared with August, but was five percent less than in September 1995.

Services now account for 49.5 percent of GNP and goods for 41.9 percent. In January-September 1995, the figures were 44.3 and 48 percent, respectively.

Russian Plans New Social Policy

· Russian First Deputy Prime Minister Viktor Ilyushin announced on Monday that the government will introduce a new social policy to stabilize living standards, reduce poverty and improve the social safety net for the very needy by 2000. ILYUSHIN described the condition of the country's social sphere as critical, with average real incomes 40 percent lower than they were in 1991, and a quarter of the population living below the poverty line. "As regrettable as it is, we are forced to admit that mass poverty has arisen," Ilyushin said at a televised press conference.

Ilyushin said the government's new program would be divided into two phases. During the first, from now until the end of 1997, Moscow will concentrate on gradually reducing poverty, rationalizing the labor market, and improving infrastructure. In part, this will mean eliminating pensions arrears, which reached 14 trillion rubles ($2.6 billion) in October. During the second phase of the plan, from 1998 to 2000, the aim is to create conditions for real growth in incomes and root out poverty.

Russian Privatization Revenues Low

· Russian privatization this year has raised 967.8 billion rubles ($178.1 million) so far—only 24 percent of the revenue budgeted by the government, reported today's Wall Street Journal. Officials hope to make up the difference by offering big stakes in major companies. In a similar situation last year, the government auctioned shares in companies for loans from banks to make up the revenue deficit.

Business

NEC Contract in Nizhny Novgorod

· Japan's NEC Corp. announced Monday it has received an order from Russia's Svyazinform telecommunications carrier to install switching and optical transmission systems in the city of Nizhny Novgorod, reported Reuters. According to the 500 million yen (about $4.7 million) contract, the systems will be shipped by the end of the year, and begin operating before the end of June 1997. The main contractor in the project is Sumitomo Corp.

Chase to Work on Sakhalin Oil Project

· Chase Manhattan Bank has been named financial advisor to the Sakhalin Energy Investment Co. in connection with the first phase of its Sakhalin-2 oil and gas development project in Russia's Far East, reported Dow Jones on Friday. Sakhalin Energy is a consortium comprised of Marathon Sakhalin Ltd., McDermott Sakhalin Inc., Mitsui Sakhalin Development Co., Shell Sakhalin Holdings BV, and Dia

When you need to know it as it happens

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mond Gas Sakhalin BV, a unit of Mitsubishi Corp.

IDC Opens Moscow Office

· Framingham, MA-based International Data Corporation (IDC), an information technology (IT) market research and consulting firm, announced on Monday that it has opened a research office in Moscow, said a company press release. The new IDC Russia office is responsible for a series of IDC reports on IT markets in Russia including PCs, LAN servers, systems and servers, printers, photocopiers, and fax machines. It also coordinates local data collection for IDC's Eastern European quarterly PC shipment tracking service. This is IDC's fourth office in east Europe with other offices located in the Czech Republic, Hungary, and Poland. IDC estimates that the Russian IT market was worth $2.21 billion in 1995 and is on target for double digit growth in 1996.

"Establishing a Moscow office underlines IDC's belief that "arm's length" market research in this part of the world is not credible," said Steven Frantzen, Director of IDC's East/East Central European Expertise Center. "The IT market in Russia is evolving so rapidly there can be no substitute for an on-the-ground presence and continuous contact with local players."

In 1996, IDC conducted research in Bulgaria, Czech Republic, Hungary, Poland, Romania, Russia, Slovakia, Slovenia, and Ukraine. The research includes core market share, forecasting, and qualitative analysis of personal computers, multiuser systems, UNIX systems, workstations, LAN servers, local area networks, and desktop printers.

Russian Learn About Managed Care

· Oakland, CA-based Kaiser Permanente International (KPI) has begun a two-week training program in the US for a team of 14 Russian physicians and administrators that will provide an intensive introduction to the concepts and principles of managed health care, said a KPI press release. The training is offered in conjunction with a $4.5 million three-year cooperative agreement with the US Agency for International Development (USAID) to assist the Russians in reforming their health care system.

Under the agreement, KPI will consult on designing and implementing several models of integrated health care delivery systems in Russia. A total of three

demonstration sites will be established—one each in Russian regions of Kaluga, Samara, and Stavropol. "As part of our work we will consult on innovative governance structures that represent alternatives to the present centralized, government run health care system," KPI Director Susan Cheney is quoted in the press release as saying.

Although the Russian government has taken a number of steps this decade to facilitate reform of the country's deteriorating health care system, little actual progress has been made. Compared to Organization for Economic Cooperation and Development (OECD) countries, Russians have shorter life

expectancies, higher illness and mortality rates among working age persons, and higher infant mortality rates. It is estimated that Russia currently spends less than 1.5 percent of its GDP on health care, far less than the US or OECD countries. Scarce health care resources are misallocated, with 70 percent of resources spent for expensive hospital care and virtually no emphasis on prevention and primary care. Under-capitalized hospitals, clinics and medical equipment are in disrepair and crumbling.

KPI was launched earlier this year as a not-for-profit subsidiary of Kaiser Permanente, the largest and oldest not-for-profit health maintenance organization (HMO) in the US. KPI offers management and advisory services such as strategy and planning, quality improvement, medical economics, clinical and operational improvement, technology development, and facilities design and construction.

European Republics

Kuchma on Ukraine Economic Reform

· Ukrainian President Leonid Kuchma described the current economic situation in Ukraine and reviewed his work since his election in July 1994 in an interview with the French newspaper Le Monde, published on Monday. Kuchma said the dramatic economic reform he launched in the country will allow the government to keep inflation at about 25 percent a year in 1997, reduce the budget deficit to 2.4 percent of GDP, and reach economic growth of about 1.7 percent.

"No one longer talks about a possible disintegration of Ukraine or its return to Russia," said Kuchma,

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adding that "Ukraine's independence is a guarantee that Russia will never become an empire again."

Ukraine's Hryvnia Liberalized

· Ukraine will allow its new hryvnia currency to float on the local foreign exchange market, said central bank Chairman Viktor YUSHCHENKO yesterday, reported today's Financial Times. After spending $200 million since September 2 to keep the new currency at 1.76 to the dollar, the government last week ended this practice.

On Monday, the hryvnia closed at 1.77 to the dollar on the Interbank Currency Exchange and analysts expect it to remain steady in the coming weeks. YUSHCHENKO said that Ukraine still wants a $1.5 billion currency stabilization fund from the International Monetary Fund (IMF) in place by early next year. The government may then change its exchange rate policy, possibly instituting a fixed peg against a hard currency, or a narrow trading ban.

Transcaucasia and Central Asia

French Foreign Minister in Caucasus

· Following last week's visit to Armenia, Azerbaijan, and Georgia, French Foreign Minister Herve DE Charette suggested that the Caucasus, which promises to become Russia's "oil Eldorado" in the near future, is of strategic importance to France, reported Itar-Tass on Monday, citing the Minister's interview with Le Figaro. He predicted that "a battle for future jobs for young French people" will have to be fought in the Caucasus and the Caspian region.

The minister also announced that Paris intends to establish a Group of Friends of Georgia with the participation of the permanent members of the UN Security Council and Germany in the interests of solving the Abkhaz problem.

de Charette admitted that France was lagging behind the US, Britain, and Norway in its valuation of Azerbaijan, but was determined to catch up with

them. On Friday, de Charette proposed a new consortium be set up to work on the Lenkorandeniz and Astaradeniz fields, where Elf Aquitaine hopes to acquire a 75 percent stake, according to Elf vice-president Joel Beaucheau, reported United Press International (UPI). Elf Aquitaine and SOCAR signed an agreement in June 1995 to develop two fields is set to begin work pending the approval of the Azeri president, said Beaucheau. During his visit to Baku, the French foreign minister succeeded in securing President Geidar Aliyev's "firm commitment" French concern Elf Aquitaine participation in the development of the Azeri oil fields.

In Armenia and Georgia, French companies hope to sign contracts for the provision of an air traffic control system and waste water treatment plant. "We have very friendly relations with each of the three Caucasian states, but we believe that contracts need to be signed to strengthen them further," he said.

Britain Wants to Join Azeri Oil Consortium

· British Prime Minister John Major has asked Azerbaijan to consider a proposal to create a new international consortium to explore and develop oil fields in its Caspian Sea waters, reported United Press International (UPI) on Saturday, citing Azeri state oil company SOCAR president Natik Aliyev. The SOCAR president said Major had included US Mobil, France's Total, and British Ramco Energy in the proposed consortium in a letter written to Azeri President Geidar Aliyev. Natik Aliyev said he "had not yet made any decisions" and that representatives of the oil companies would send him concrete proposals and details before negotiations begun.

Kazakhstan Pres. Names New Staff Chief

· Kazakh President Nursultan NAZARBAYEV on Monday appointed Aralbai ABDUKARIMOV as his new chief of staff, reported Xinhua, citing the Kazakh news service. He will replace Saginbek TURSUNOV, who was dismissed in July. NAZARBAYEV also named Stepan SHUTKIN to be the country's new prosecutor general.

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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