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

Wednesday, October 2, 1996

Russian Federation


Yeltsin to Meet with Lebed

· After more than two months of giving him the cold shoulder, Russian President Boris Yeltsin has scheduled a working meeting with Security Council secretary Aleksandr Lebed on Thursday. The presidential press service reported that Yeltsin and Lebed will focus their attention on the progress of the Chechen peace process. The two may also discuss LEBED's recent calls for the President to transfer his powers while he is in the hospital.

Duma Opens Fall Session with Chechnya

· The Russian State Duma convened its fall session today and was told by President Boris YELTSIN that "the quality and intensity of its work could be considerably higher" than it was last year, reported Dow Jones. YELTSIN issued the opening-day statement to the Communist-led parliament from his hospital bed. In his speech to the session, Communist Party head Gennady ZYUGANOV said that the president's illness has left the country rudderless, said Dow Jones. ZYUGANOV and other deputies have been calling for YELTSIN to step down in light of his impending heart surgery.

The main topic on the Duma's agenda today is the current peace initiative in Chechnya. Security Council chief Aleksandr Lebed, Interior Minister Kulikov, Defense Minister Rodionov, Nationalities Minister Mikhailov, and other officials will address the parliament on the peace process, while the chairmen of the defense and security committees, Lev Rokhlin and Viktor Ilyukhin, will make special reports on the Chechen question. In addition, the head of the pro-Moscow Chechen government Doku Zavgayev, who for all intents and purposes is out of power, wants to address the Duma.

The Security Council chief may present to parliament his plans for restoring the Chechen economy. In a recent interview with Literaturnaya Gazeta, Lebed said that there is no need for huge federal spending on economic restoration in Chechnya. He suggested several measures which could help the economic situation in the war-torn republic: Chechnya should be exempt of all taxes, oil extraction should resume on two oilfields, the oil refinery should resume operating, and problems with the oil pipeline through Chechnya should be settled. He optimistically estimated that the restoration of the Chechen economy will take a year and a half.

In related news, Chechen rebel leader Zelimkhan Yandarbiyev is expected to arrive in Moscow on Thursday for talks with Russian officials on furthering the peace process.


Ruble = 5,411/$1.00 (NY rate)

Ruble = 5,415/$1.00 (CB rate)

Ruble = 5,409|5,421/$1.00 (buy|sell rates)

Government Freezes Gazprom Accounts

· Russian gas monopoly Gazprom chairman Rem Vyakhirev told a press conference on Tuesday that the Russian government has frozen the accounts of some of the company's largest units in an effort to force it to pay its tax debt to the federal budget. He also charged that the government was preparing inven

Today's News Highlights


Gazprom Angry at Govt.

Aeroflot-Tatarstan in Talks

Benton Oil Gets EBRD Funds

IFC Indices to Include Russia

European Republics

Ukraine-Russia Still in Dispute

Transcaucasia & Central Asia

CIS to Meet on Afghanistan

Turkmenistan is Neutral

P&W Deal with Uzbekistan




October 2, 1996

Intercon's Daily

tories of the property of several Gazprom subsidiaries and has threatened to auction them off, if the company did not pay tax arrears, said today's Financial Times, citing Interfax. VYAKHIREV said that he has sent a letter to the Russian parliament complaining about government plans to break up Gazprom and asking for reductions in the prices of oil, metals, and rail tariffs in line with natural gas. "A number of statesmen in charge of state of affairs in the economy have been of late ever so persistently pushing the idea that it is worthwhile to `expropriate [raskulachit]' Gazprom...so that the state could patch up holes in the budget," today's Nezavisimaya Gazeta cited the letter as saying.

VYAKHIREV contended that Gazprom's debts to the budget was caused by consumers' (some of which are organizations funded by the government) debt for gas deliveries. According to Gazprom figures, the company's debt to the budget currently stands at about 15 trillion rubles, while Russian customers owe Gazprom 49 trillion rubles. VYAKHIREV's letter to the parliament outlines proposals for settling the debt problems with the government, including a plan for mutual offsets of debts between fuel, energy, and railroad enterprises.

The dispute between Gazprom, a state-owned company, and the government is all the more surprising because the company has powerful advocates in the administration—Prime Minister Viktor CHERNOMYRDIN and Energy Minister Igor RODIONOV are both former Gazprom employees.


Aeroflot Smoothing Things Over with Tatarstan

· Russian Aeroflot general director Yevgeny Shaposhnikov said Tuesday that his company plans to buy Russian-made aircraft, but wants plane designers and producers to raise aircraft reliability, reported Itar-Tass. The announcement came after talks with Republic of Tatarstan Prime Minister Farid Mukhametshin, who had criticized Aeroflot for its plan to buy US-made Boeings instead of Russian-made TU-214 planes. During a joint news conference, the two men called on the state to allocate funds for finalizing production of the TU-214 planes and merge design bureaus with producers. They also called for creation of a Russian state leasing air

company. SHAPOSHNIKOV did not specifically say that he would cancel the Boeing deal and apparently his promises to domestic producers refer to the Russian airline's medium- and long-, rather than the short-term buying plans.

Meanwhile, US Boeing Company chairman Frank SHORTZ told reporters in Seattle on Tuesday that Russia had agreed to waive stiff tariffs to facilitate Aeroflot's planned purchase of 10 Boeing 737-400s, reported Reuters. He said that the move had spurred Boeing's decision to withdraw opposition to Aeroflot's purchase of 20 IL-96 planes powered by United Technologies Corp. Pratt & Whitney engines and financed by the US Export-Import Bank.

Benton Oil Receives EBRD Financing

· California-based Benton Oil & Gas Company on Tuesday announced that Geoilbent Ltd., its 34 percent-owned Russian joint venture, has received approval from the Board of Directors of the European Bank for Reconstruction and Development (EBRD) for non-recourse project financing, according to a company press release. The EBRD has agreed to provide up to $55 million to Geoilbent over the next three years. An additional $10 million in parallel financing is expected to be raised from a Russian lending institution.

The financing will be used to further develop the North Gubkinskoye and Prisklonovoye Fields in West Siberia. With the proceeds from the facility and

Russian-American Business Summit 2000

October 23, 1996

Capitol Hilton Hotel, Washington, DC

Organized by:

Russian-American Chamber of Commerce (RACC)

Meeting will include a special two-part panel session

on the Russian Telecommunications Industry.

Speakers include: AT&T, DirectNet, Global One,

ECI Telecom, Hughes Network Systems,

Nortel, and Sun Microsystems.

Topics include: recent developments in Russian

telecommunications services, privatization of

telecom companies, investment opportunities,

and case studies of operations in Russia.

Information and registration: Tel: 1-800-842-5583

When you need to know it as it happens




October 2, 1996

Intercon's Daily

its own cash flow from operations, Geoilbent expects to increase the pace of development drilling and expand the production facilities and other infrastructure. Geoilbent oil reserves are estimated to be approximately 300 million total recoverable barrels.

Benton Oil and Gas is an independent oil and gas exploration and production company with international operations in Venezuela and Russia.

IFC Indices to Include Russia

· The World Bank's International Finance Corporation (IFC) cast a vote of confidence in the Russian stock market Monday by announcing a new daily index for Russia. The move will likely result in increased investment in the fledgling market, according to Reuters. The IFC's Russia global index is made up of 25 top Russian companies, ranked by market capitalization and value traded. Inclusion in the IFC global index series is a sign that the local stock market in Russia has reached certain standards of transparency. IFC indices are widely followed by fund managers, who use them as a guide to some investments.

Aleksei TELYATNIKOV, head of the Russian Trading System (RTS) electronic over-the-counter stock trading network, said that the new index will help the Russian stock market provide more liquidity for investors. "We have already had some interest from foreign investors who were interested not in a particular stock, but in the index," Reuters quoted him as saying. The RTS has its own index of 24 leading shares. IFC market analyst Constantinos GRIGORIADIS said an investable index for Russia, signaling a market suitable for US and European pension investment, could be launched in the second half of 1997.

The 25 stocks to be included in the index are: Bratsk Timber, Chernogorneft, Kondpetroleum, FESCO, Gazprom, Irkutskenergo, KamAZ, Komineft, Lukoil, Megionneftegaz, Moscow Telephone, Mosenergo, Nizhnevartovskneftegaz, Norilsk Nikel, Novolipetsk Steel, Noyabrskneftegaz, Purneftegaz, Rostelekom, Severstal, St. Petersburg Telephone, Surgutneftegaz, Tatneft, Tomskneft, Unified Energy Systems, and Yuganskneftegaz. Russia's stock market is still relatively small, with an average daily turnover of $10-30 million.

European Republics

Russian-Ukrainian Differences Remain

· Despite Ukrainian President Leonid KUCHMA's optimistic assessment of a recent meeting between himself and Russian Prime Minister Viktor CHERNOMYRDIN, the two main contentious issues between the neighbors—the use of Sevastopol by a divided Black Sea Fleet and Russia's imposition of a VAT on Ukrainian goods—apparently remain unresolved. Following a one-day meeting of the two leaders in Moscow on Sunday, Kuchma told reporters that Ukraine and Russia had reached an agreement on the two major outstanding bilateral issues and could sign treaties to settle their various disputes during a CHERNOMYRDIN visit to Kiev, slated for October. In Kiev, KUCHMA told Interfax that "we fully agreed on the Black Sea Fleet issue and trade issues, including the levying of value added tax on imported Ukrainian products."

CHERNOMYRDIN called the talks "extremely useful" and said he hopes to sign an agreement on the Black Sea Fleet in Ukraine during the first half of October. He also said that Russia and Ukraine are close to signing a friendship and cooperation treaty.

However, over Ukrainian objections, the Russian customs service went ahead on Tuesday and began levying a 20 percent value added tax (VAT) on imports from Ukraine. A spokesman for the Russian State Customs Committee told the new Prime-Tass news agency today that the VAT payments for Ukrainian goods had been deferred without levying interest for the period from September 1 to October 1. State Customs Committee deputy chairman Vladimir Meshcheryakov said the VAT on Ukrainian imports is bound to affect bilateral trade. The VAT was introduced by an August presidential decree and a September governmental order. Negotiations between the two sides on abolishing it were unsuccessful. Also, an interview with Black Sea Fleet commander VIktor KRAVCHENKO in Tuesday's Nezavisimaya Gazeta, suggested that Russia is not ready to compromise on the Fleet either.

Transcaucasia and Central Asia

CIS to Meet on Threat From Afghanistan

· Russia and four Central Asian states will meet in

When you need to know it as it happens




October 2, 1996

Intercon's Daily

Almaty at the end of this week to discuss the possible threat to their territories from the new Islamic regime in Afghanistan. Russian President Boris Yeltsin on Tuesday took the initiative by calling the summit on Afghanistan, instructing Prime Minister Viktor Chernomyrdin to represent Russia at the meeting after contacting the leaders of the interested CIS member-countries. The summit is expected to include the presidents of Kazakhstan, Tajikistan, Kyrgyzstan, Turkmenistan, and Uzbekistan, as well as some foreign ministers. Participants will discuss the forming of a common policy towards the new developments in Afghanistan and decide on specific additional measures to strengthen the southern borders of the CIS. Afghanistan shares a border of more than 1,500 kilometers with Tajikistan, Uzbekistan, and Turkmenistan.

"The main aim is to prevent the events in Afghanistan from destabilizing the situation in neighboring countries. What is happening in Afghanistan goes beyond the boundaries of this country and has regional significance," Russian First Deputy Foreign Minister Igor IVANOV told Interfax.

The Tajik government has already expressed concern over the possibility of a spill over of hostilities between the Taleban militia forces and the Afghan government troops towards the borders of the Central Asian republics. Tajikistan is also worried about the presence of Tajik rebel opposition forces in the Afghan areas bordering on Tajikistan and the uncertainty of their leaders' stance on the Afghan developments, reported Itar-Tass, citing sources in Dushanbe. According to unconfirmed information from a number of sources, Taleban officials have already held a meeting with representatives of the Tajik Movement for the Islamic Revival of Tajikistan in Kabul, said the news agency.

Kazakhstan has called for a special meeting of the UN Security Council to work out "urgent measures on stopping the bloodshed and political settlement of the conflict," said Tuesday's Kommersant-Daily.

Russian Security Council chief Aleksandr Lebed said on Tuesday that if the Taleban forces succeed in reaching the CIS southern borders, it would pose a major threat to Tajikistan and Uzbekistan, and, consequently, to Russia, particularly its peacekeeping forces on the Afghan border. "If the Taleban advance to the borders of Uzbekistan and Turkmenistan, part of whose territory they want to join with their own, and then sweep away the border outposts, the road to the north will be clear," he is quoted by Interfax as saying.

Turkmenistan Declares Neutrality

· Turkmenistan's parliament has passed laws aimed at guaranteeing the implementation of basic provisions of its military doctrine and international obligations, ensuing from its neutral status.

P&W in $60 Million Deal with Uzbekistan

· Pratt & Whitney, a unit of Hartford, CT-based United Technologies Corp., announced on Tuesday that it has received a 10-year, $60 million contract from national carrier Uzbekistan Airways to maintain the airline's fleet, which includes planes equipped with Pratt & Whitney engines, said a company press release. Uzbekistan Airways currently operates two PW4000 powered Airbus A310s and beginning later this year, will acquire two new PW4000 powered Boeing 767s, as well as a PW2000 equipped 757 VIP aircraft. The Pratt & Whitney fleet management engine support program will provide Uzbekistan Airways a fully comprehensive engine maintenance support package, including spare parts and engines, support equipment, engine overhaul, performance monitoring, and line maintenance for the airline's Airbus and Boeing fleets.

As one of the leading airline operators in the former Soviet Central Asia, Uzbekistan Airways has the largest fleet of Western aircraft, all Pratt & Whitney powered. Uzbekistan Airways operates out of Tashkent to over 25 international destinations, including London, Frankfurt, Amsterdam, New York's JFK, Bangkok, and Seoul.

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.

When you need to know it as it happens