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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, October 16, 1996

Russian Federation


Yeltsin Surgery to Go Ahead as Planned

· Dr. Sergei MIRONOV, head of the Kremlin medical center, told Interfax today that Russian President Boris YELTSIN will undergo heart bypass surgery in mid-November, as planned. He refuted rumors, broadcast Tuesday on Ekho Moskva radio, that YELTSIN's hemoglobin reading was too low for him to undergo surgery. Continued rumors about YELTSIN's unfitness for surgery and untimely death over the past few weeks have disrupted world financial markets and forced Russian officials to issue a series of denials.

Lebed Defends Chechnya Plan to Duma

· Russian Security Council secretary Aleksandr LEBED on Tuesday addressed a closed session of the Russian State Duma to defend his peace initiative in Chechnya, telling deputies that the conflict could have dragged on indefinitely. "Such conflicts are either resolved in 42 hours or are fought for 48 years," he said, reported the Associated Press (AP), citing legislators at the session.

According to excerpts from LEBED's speech, published in today's Komsomolskaya Pravda, he used the occasion to hit back at certain officials who have criticized his peace initiative. "It would be naive to believe that we do not take into account an attitude to a peaceful solution of the problem by some part of our society and some politicians, as expressed by Interior Minister Kulikov. It is regrettable that some officials make attempts to explode the situation for the sake of achieving their personal and ambitious aims and satisfying their wounded self-respect."

Also on Tuesday, President Boris YELTSIN ordered LEBED, KULIKOV, and Prime Minister Viktor CHER

NOMYRDIN to stop fighting amongst themselves on the issue of Chechnya and support a common policy stance. According to chief presidential spokesman Sergei YASTRZHEMSKY, YELTSIN told them to cease their "verbal duels" over Chechnya, before the parliamentary session, reported Reuters. "The president is concerned by elements of confrontation on the public political stage ... between members of the same team," he is quoted as saying.

Kulikov Accuses Lebed of Coup Attempt

· Despite Russian President Boris YELTSIN's admonition for government members to get along, Interior Minister Anatoly KULIKOV today stepped up his war of words against Security Council chief Aleksandr LEBED. During a news conference today, the Minister accused LEBED of conducting a "creeping coup" in order to gain power by force, rather than waiting to run in the next presidential election. "He is actively using his authority as Security Council secretary to create power structures reporting personally to him," KULIKOV was quoted by Reuters as saying. "We have information that he is planning to go on vacation soon to prepare to use force on a local level," he added, declining to elaborate further. KULIKOV accused LEBED of seeking to create his own elite military force numbering up to 50,000 fighters, and claimed to have written proof of his allegations, reported RFE/RL.

Security Council spokesman Aleksandr BARKHATOV dismissed the allegations as "not serious," reported Interfax. LEBED himself told Interfax that

Today's News Highlights


Perry In Russia

Duma Sends Bank 1997 Budget

Crackdown on Tax Debtors

IBS Joins ENTREX Alliance

European Republics

Lukachenko in Moscow

Lithuanian FIL More Friendly

Transcaucasia & Central Asia

MRT Energy Group in Azerbaijan

Aliyev Worried About Pipeline




October 16, 1996

Intercon's Daily

he plans to sue KULIKOV for libel. He added that he does not need the money that the Interior Minister has obtained through bribes and so will only ask for one ruble worth of damages. In regard to his mustering a private army, LEBED said of KULIKOV, "The poor thing has got everything wrong," according to Voice of America (VOA).

In related news, Moskovskiye Novosti reported today that certain "opposition" members have been trying to convince its reporters that LEBED had planned to stage a coup on the night of October 2-3, but was foiled by the quick actions of KULIKOV.

Crime/Corruption in Army is Epic

· The crime situation in the Russian army is close to critical, said Russian Military Prosecutor Valentin Panichev today. He told a board meeting of the Military Prosecutor's Office that an increasing number of officers are involved in crime, and billions of rubles are currently being embezzled from the army, reported Itar-Tass. Embezzlement and audit-discovered shortages amounted to over 60 billion rubles in the first six months of 1996, he said. Military prosecutors have instituted about 100 criminal cases against officers of colonel's rank or higher, including 15 generals and admirals. Furthermore, military prosecutors sent to courts more than 300 suits involving a total of 60 billion rubles in embezzled funds. The figures have no precedent in the Russian army's history, said Panichev.

In addition, investigations recovered over 70 billion stolen rubles and exposed numerous instances of abuse of office by military officials in housing construction and distribution programs, while the Russian officer corps suffered dire housing shortages. Military prosecutors seized hundreds of apartments provided to ineligible officers and handed them over to those in real need. Criminal proceedings were started against a number of high officers who had manipulated housing privileges. Military prosecutor's offices carried a total of 17,000 probes during 1996 and reversed over 300 unlawful orders of the military command. Investigators exposed 12,792 common-law and some 350 other crimes, including 25 culpable murders.

Panichev said the army's crime and accident-related mortality is high, citing the 1996 number of

deaths to be 1,914. More than 4,000 servicemen were injured or crippled in accidents.

Perry in Russia Promoting START II

· US Secretary of Defense William Perry arrived in Moscow today, flanked by Senators Sam NUNN and Richard LUGAR, to boost bilateral military ties and urge the Russian parliament to ratify START II. The US Congress ratified the treaty in January. PERRY will meet with Defense Minister Igor Rodionov and other top officials, and will address the State Duma on Thursday in an attempt to convince legislators to ratify START II. The US official's task will not be easy. An unnamed Russian foreign ministry source told Interfax Tuesday that "qualitative and quantitative" changes need to be made to the treaty before it should be ratified by the Russian parliament. Moreover, senior US defense officials believe that many Russian legislators who oppose START II actually know little about it and PERRY will have to explain in detail why the treaty is in both sides best interests, according to Voice of America (VOA).


Ruble = 5,441/$1.00 (NY rate)

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

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

Duma Sends Back 1997 Budget

· The Russian State Duma today voted 273-83, with 12 abstentions, to reject the 1997 draft federal budget calling for the government to change some of the basic parameters of the budget. The government now has 20 days to submit a revised budget, which will be reviewed for 10 days by a conciliation commission composed of representatives of both houses of parliament and the government.

Finance Minister Aleksandr Livshits said over the weekend that the government is prepared to compromise on some issues, but will stick to the main targets. These include GDP growth of one percent, a budget deficit equivalent to 3.3 percent of GDP, and a money supply equivalent to 15 percent of GDP.

Crackdown on Tax Debtors

· In its most significant move on the issue to date, the Russian government announced Tuesday that it will bring bankruptcy suits against six of the 185

When you need to know it as it happens




October 16, 1996

Intercon's Daily

large, profitable enterprises with major tax debts, unless bills are settled within a week, said today's Financial Times. Oil producer Tatneft and Kamaz truck plant, both located in the Republic of Tatarstan, are among the six companies targeted, along with oil companies Purneftegaz and Krasnodar-nefteorgsintez, automaker Moskvich, and aluminum company Achinsky Glinozemny Zavod. The companies were notified of the decision on Monday.

These six enterprises owe a total of more than 1.5 trillion rubles in federal budget payments. The total revenue owed by businesses to the federal government for the first eight months of the year is more than 50 trillion rubles ($9 billion). Most of this total—12 trillion rubles—is owed by 185 major Russian enterprises. "These figures mean that problems faced by every second pensioner, teacher, or soldier who have not been paid their money over the recent months are on the conscience of managers of these enterprises," RIA Novosti quoted Federal Bankruptcy Agency head Pyotr MOSTOVOI as saying. A government commission on non-payments is currently investigating the financial condition of 10 other enterprises which regularly fail to make payments.


Russia's IBS Joins ENTEX Alliance

· Rye Brook, NY-based ENTEX Information Services Inc. announced on Tuesday that IBS, the largest privately-owned corporate PC systems integrator in Russia and the CIS, has joined the ENTEX International Alliance Partnership, said a company press release. The ENTEX International Alliance, which is designed to give large corporate customers a single point of contact for their global IT needs, including integrators in 26 countries. The Alliance provides the resources of over 300 sales and service offices, 12,000 employees, and $7 billion in revenue to multinational organizations looking to secure information technology through best-of-breed systems and processes on a consistent basis worldwide, said the release.

IBS has operated as a systems integrator and distributor of computers technologies and telecommunications in the CIS and has been a key player in the development of the Russian computer market since 1986. Independent analysis firm DATOR named

IBS the most authoritative computer company in Russia for the last three years.

"We are pleased to partner with ENTEX and Alliance member Info'Products Europe to extend our capabilities worldwide," said IBS President Anatoly KARATCHINSKY. "The growth in interest and investment by multinational corporations in the CIS aligns perfectly with our ability to provide Alliance customers with world-class computer productions and services in our environment."

European Republics

Lukashenko in Moscow, EC in Minsk

· Belarussian President Aleksandr Lukashenko met today in Moscow with his Russian counterpart Boris Yeltsin to discuss deepening economic cooperation and continuing efforts to integrate the two countries. Russia and Belarus signed a bilateral agreement in April on political and economic integration. During his one-day visit to Russia, Lukashenko will also meet with Prime Minister Viktor CHERNOMYRDIN and possibly Aleksandr LEBED.

Meanwhile in Minsk, Belarussian parliamentary speaker Semyon Sharetsky told Leni Fischer, head of the Council of Europe's parliamentary assembly (PACE) that the situation in the country's capital was very volatile and violence was likely to erupt over the weekend. A demonstration by anti-LUKASHENKO forces is planned for Saturday to coincide with a "Belarussian People's" congress being held by the president to gain support for his proposed constitutional referendum. "I await with fear the events of October 18 and 19. Yesterday my deputy said he expected bloodshed," SHARETSKY is quoted by Reuters as saying.

Sharetsky said the parliament was pinning great hopes on the Council of Europe's (COE) assistance in stabilizing the political situation in the country, which was "engulfed by political feuds," said Itar-Tass. However, FISCHER informed him that the COE would not hold debates on the situation in Belarus until November 7, following a fact-finding mission by COE experts in October. Belarus is not a full member of the Council. Fischer addressed the parliament and met Prime Minister Mikhail Chigir and Constitutional Court president Valery Tikhina.

When you need to know it as it happens




October 16, 1996

Intercon's Daily

Lithuanian Law More Investment Friendly

· Foreign investment incentives—long considered a necessary step in bringing Lithuania up to speed economically with her Baltic neighbors—went into effect in Lithuania on August 1. Under the amendment to the Foreign Investment Law, investments over $2 million will be exempt from the 29 percent corporate profit tax for three years, followed by another three years at half the normal rate, reported today's Journal of Commerce. The exemption is valid for both new and existing investments. The amendment ended the requirement that at least 30 percent of a joint venture's capital should come from abroad.

A new law on insurance, which became effective on July 31, allows companies and individuals to deduct insurance payments from their taxes. The law says foreign insurers will only be able to enter the Lithuanian market through a tender, and must prove that no local company is capable of taking on the work.

Transcaucasia and Central Asia

MRT Energy Consortium in Azerbaijan

· Britain's Ramco Energy, US Mobil Oil Corp., and France's Total Exploration and Production today announced the signing of an agreement to jointly evaluate oil and gas exploration production opportunities in Azerbaijan, said a Ramco press release. The consortium will be known as MRT Energy, and be 20 percent owned by Ramco, 40 percent by Mobil, and 40 percent by Total. Ramco Chairman and Chief Executive Steve REMP will be the group's first chairman. The companies have informed Azeri President Geidar ALIYEV of the agreement. The area covered by the agreement was selected because it offers a good opportunity for quick development and production. "This American, French, and British alliance has been formed with a clear mandate to focus on oil development projects which will produce early revenue for both Azerbaijan and the alliance partners," said REMP. Ramco is already a member of the Azerbaijan International Operating Company (AIOC).

Aliyev Concerned About Russian Pipeline

· Azerbaijan's head of state has expressed concern over Russia's ability to deliver on schedule a pipeline route to transport early oil output from a major oil development project. At a recent meeting, Azeri President Geidar ALIYEV told representatives of the Azerbajian International Operating Company (AIOC), the consortium developing three major oilfields in the Azeri section of the Caspian Sea, that he does not rule out personally taking part in a Russian-Azeri discussion on "the preparedness of the Russian side to export Caspian oil from Baku to Novorossiisk," reported RIA Novosti. The 1,411 km pipeline route, only 250 km of which runs through Azeri territory, is scheduled to be ready to export oil in late August of next year. However, ALIYEV says he has received no information on the condition of the portion of the pipeline situated on Russian territory, part of which runs through war-torn Chechnya. He wants to organize a meeting with Russian pipeline operator Transneft, which is in charge of the pipeline reconstruction project, to discuss the status of the work.

Kazakh Grain Harvest Seen Up

· Grain yields in Kazakhstan are expected to reach 13 million tons this year, up from some 11 million tons in 1995, reported Xinhua today. Kazakh deputy Prime Minister Zanybek Karibzanov told a press conference that the harvest has been completed in 15 of the country's 19 states. He also said Kazakhstan is likely to export more grain this year to other CIS countries. The Kazakh government has taken a host of measures to support grain producers, providing them with loans, seeds, and fertilizers.

World Bank Plans Loan to Kyrgyzstan

· World Bank vice president Johannes LINN told reporters in Bishkek today that Kyrgyzstan would be offered a $200 million credit to develop its agriculture, energy, and social security sectors, said Reuters. LINN noted that Kyrgyzstan was one of the first former Soviet states to achieve real growth. The country's GDP has risen three percent this year, and the Bank expects GDP growth of 7-8 percent in 1997.

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.

When you need to know it as it happens