DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 908,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, October 21, 1996

Russian Federation

Politics

Rybkin Named Security Council Chief

· Russian President Boris YELTSIN moved quickly Saturday to restore political calm by naming moderate former parliamentary speaker Ivan Rybkin to replace Aleksandr Lebed as Security Council chief and presidential envoy to Chechnya. Lebed was a controversial figure who openly sought greater powers and criticized YELTSIN and other government leaders. His dismissal was preceded by months of political infighting with other Kremlin leaders, and RYBKIN's appointment should help quiet the storm.

A former member of the Communist Party, Rybkin unexpectedly proved to be a conciliatory leader during his two years as State Duma speaker. He also became known for supporting the president within the opposition parliament. After his replacement following December 1995 parliamentary elections, he was rewarded for his loyalty to the president by being appointed to head the president's political advisory council, and has been a member of the Security Council since 1994.

RYBKIN promised to continue with LEBED's Chechen peace initiative. "It is extremely important that our common wound—Chechnya—not bleed any more," Rybkin told Interfax. "I am a convinced supporter of the peace agreement for settling the crisis in Chechnya and will do everything to continue our withdrawal from there," he said.

Opposition political leaders welcomed Yeltsin's decision, but with some reservations. Communist Party leader Gennady Zyuganov told Itar-Tass on Saturday that Rybkin will have to "serve the security of Russia," but he added, that requires "character and certainty, and that's where I have doubts."

The Chechen reaction to RYBKIN's appointment was essentially favorable. Movladi Udugov, First deputy prime minister of the new Chechen coalition government told Itar-Tass on Sunday that Rybkin's statement that he would continue the current course of peace talks and following the agreements signed in August "inspired certain optimism." The new Prime Minister of the Chechen coalition government, Aslan Maskhadov, took a more cautious approach, saying he had no expectations for Rybkin, but "we shall judge by his deeds."

Yeltsin Creates New Political Council

· Russian President Boris Yeltsin today announced plans to set up a temporary consultative council, composed of four legislative and executive leaders—the president, the prime minister and the heads of both houses of parliament, to discuss key issues in the country. State Duma speaker Gennady SeleznyEv told Interfax after a meeting with the president. SeleznYEv stressed to reporters that, despite his illness and impending heart surgery, Yeltsin is still in control of the country. However, the announcement that presidential chief of staff Anatoly Chubais will represent Yeltsin on the new council, while he is absent from the Kremlin, is causing a stir in Moscow. Many Russians believe Chubais has already been running the show in Yeltsin's stead, and this move seems to confirm these fears.

Yeltsin Fires Army Staff Chief

· Russian President Boris YELTSIN signed a decree on Friday removing

Today's News Highlights

Russia

Regional Election Results

Civil Aircraft Industry Meeting

Auerback Gets New Director

CIS Eco. Indicators Table

European Republics

Lukashenko Delays Referendum

Belarus Cancel RJ Reynolds

Transcaucasia & Central Asia

UN Denies Abkhazia Elections

Ramco Energy in Georgia

Politics-Economics-Business

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Monday

October 21, 1996

Intercon's Daily

Mikhail Kolesnikov from his post as chief of the Russian armed forces' General Staff, as well as the rank of First Deputy Defense Minister. He was replaced by Army General Viktor SAMSONOV, head of the department of CIS military cooperation.

No official reason was given for KOLESNIKOV's dismissal, and he was given SAMSONOV's old position. However, an article in Friday's Nezavisimaya Gazeta about the open voicing of discontent by General Staff officers' seems to suggest that he was fired for allowing insubordination within his department. According to the newspaper, an open letter from General Staff officers, circulated in the Defense Ministry building, was harshly critical of Defense Minister Igor RODIONOV.

Sunday's Regional Elections Results

· The most sensational of this weekend's regional elections was in the central Kursk Oblast, where former Russian vice-president Aleksandr RUTSKOI was elected governor by a large margin, staging a remarkable political comeback. He won nearly 79 percent of the vote against less than 18 percent for incumbent Vasily SHUTEEV, appointed by President Boris YELTSIN in 1991. The vote means that RUTSKOI, who helped lead a parliamentary rebellion against YELTSIN in 1993 and now heads the nationalist Derzhava party, will have a seat on the Federation Council.

Until Wednesday, RUTSKOI was awaiting a verdict from the country's Supreme Court and was not even registered to compete in the poll. He had been denied the chance to compete by the regional electoral commission because he did not meet residency requirements. The Supreme Court ruled that the requirement was unconstitutional, a ruling which should effect other regional races as well. A similar verdict was meted out last week, allowing Aleksandr LEBED's brother, Aleksei, to contest the presidency of the southwest Siberian Republic of Khakassia.

Pro-YELTSIN incumbents won in Sakhalin Oblast and the Jewish Autonomous Oblast (Birobidzhan) on Sunday. Sakhalin governor Igor Farkhutdinov won with 39.5 percent of the vote, beating his nine opponents by a considerable margin. In Birobidzhan, governor Nikolai Volkov defeated his only challenger businessman Sergei Leskov.

The election in Pskov Oblast was inconclusive, as none of the seven candidates received over 50 percent of the vote. A runoff election will be held in two weeks. Incumbent Vladislav Tumanov led the field with 30.9 percent of the vote. He will face Yevgeny Mikhailov, a member of Vladimir Zhirinovsky's Liberal Democratic Party faction in the Duma, who got 22.7 percent during the second round of voting. Turnout was about 52 percent.

In the runoff in Kaliningrad Oblast, independent candidate Leonid Gorbenko defeated incumbent Yuri Matochkin by about 30,000 votes. Gorbenko is the director of the Kaliningrad fishing port. The turnout was 43 percent.

A runoff election was also held in Kirov Oblast, where opposition State Duma deputy Vladimir Sergeenkov was elected governor, capturing 50.64 percent of the vote. Sergeenkov, a member of the People's Power pro-Communist faction in the Duma, defeated Gennady Shtin, the chairman of a regional economic association, who received 45.46 percent. The turnout was 54.3 percent. Incumbent governor Vasily DESYATNIKOV was knocked out of the race in the first round on October 6.

Economy

Ruble = 5,429/$1.00 (NY rate)

Ruble = 5,438/$1.00 (CB rate)

Ruble = 5,433|5,443/$1.00 (buy|sell rates)

Bolshakov on Situation in Airplane Sector

· Speaking at a conference on problems in the domestic aircraft building industry on Saturday, Russian Deputy Prime Minister Aleksei Bolshakov said Russia would hardly produce 20 airplanes this year, although planned annual output is 191 airplanes a year. He noted that no Russian civil aircraft model is certified for sale on the world market, but suggested that there were real opportunities to stabilize the situation in the sector, said Itar-Tass.

BOLSHAKOV believes it is necessary to rescheduling the debts of aircraft-manufacturing enterprises to the government, create conditions for replenishing operating funds, and enact new legislation relating to the industry. Deputy Defense Industry Minister Yuri Glybin also proposed to the meeting a pro

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gram for overcoming the crisis. His plan calls for the Finance Ministry to allocate 1.3 trillion rubles out of the 1997 budget to implement the presidential program for developing civil aviation. He also suggested that four trillion rubles be allocated for the sector through state leasing and another four trillion in state guarantees and investments. The minister also proposed "clearing up" the structure of aircraft-building joint stock societies and limiting airplane imports.

Business

Auerbach Grayson Securities in Russia

· New York-based brokerage firm Auerbach Grayson & Company Inc. announced today the appointment of Alexander Rappoport to the position of President, Auerbach Grayson Russia, said a company press release. "Sasha Rappoport was instrumental in the privatization of the Russian securities market in the early 1990s and is a leading specialist on the Russian stock market," said Jonathan Auerbach, Managing Director of Auerbach Grayson. "We are privileged to have him at our firm."

Before joining Auerbach Grayson, Rappoport ran his own brokerage firm in Moscow, Europa Management Invest, which was one of the largest brokerage firms in Russia. Prior to founding Europa Management, Rappoport was an attorney in Moscow and in Israel and served as a consultant to the Russian and Ukrainian governments on securities market privatization.

Rappoport is currently responsible for Auerbach Grayson's day-to-day brokerage operations activity with respect to the Russian market including: researching companies, making investment recommendations and executing purchases and sales. In addition, he will be the portfolio manager of Auerbach Grayson's soon to be launched Russia Privatization Fund that will invest in securities of Russian companies sold at privatization auctions.

"Institutional investors in the US now have the opportunity to invest in one of the world's biggest markets, and certainly one of the most undervalued," said Rappoport. Russian companies are priced 70 percent to 95 percent below their true value, he

added in the press release. "There are companies in Russia that are industry leaders and they are available at far better prices than comparable companies in Europe or the US."

European Republics

Turmoil in Belarus, Lukashenko Delays

· Bowing to pressure from the parliament and protesters, Belarussian President Aleksandr Lukashenko has postponed a proposed constitutional referendum from November 7 to the 24th in a move that will only temporarily ease the political tensions in the country. On Saturday, thousands of anti-LUKASHENKO protesters marched through Minsk to demonstrate against the referendum, which would greatly increase the president's powers and extend his term in office.

The Belarussian parliament wants to present its own version of a new constitution abolishing the presidency in a referendum on November 24 to coincide with parliamentary runoff elections. Lukashenko agreed Saturday to present his referendum and version of the constitution on the same day as Parliament, giving voters a chance to choose between the two.

The some 15,000-strong protest demonstration was timed to coincide with a meeting of the All-Belarussian Congress, described by one local newspaper

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editor as an "invented body of hand-picked `yes men'", called by LUKASHENKO to discuss the referendum. Protesters shouted "No to Dictatorship" and called for the President's resignation. They were halted by police in riot gear while trying to reach the Palace of Sport, where the Congress was being held, but no violence broke out.

Lukashenko made a two-hour speech to the Congress during which he announced the changing of the referendum date. Despite the fact that the Congress was broadcast live on all TV stations including Russia's ORT and RTV, on which Russian shows were cut off, LUKASHENKO claimed during his address that the media had been taken over by Western security services.

The Organization for Security and Cooperation in Europe (OSCE) on Saturday issued a statement urging democracy and human rights in Belarus and warning LUKASHENKO against violently repressing protests. On Thursday, US State Department spokesman Nicholas Burns issued a statement urging a cancellation of the planned referendum: "The proposed constitution under consideration would fail to provide any semblance of separation of powers, protection of individual freedom or rule of law. We call on President Lukashenko to enter immediately into consultations with the leadership in Parliament to find a compromise that protects basic human rights, the democratic process and fundamental freedoms and avoids violence."

Lukashenko Vetoes RJ Reynolds Deal

· Belarussian President Aleksandr LUKASHENKO has vetoed a potential joint venture deal between R.J. Reynolds Tobacco Co. and the Grodno tobacco factory to produce cigarettes, reported Reuters. "Why should I sell it when the fruits of such a company's labor are a central source of revenue to national budgets the world over," LUKASHENKO was quoted as saying on Sunday night. He told Reynolds to invest in truck manufacturers and electronics instead. Reynolds has been in talks since

1994 with the government about upgrading the Grodno factory and raising production to 18 billion cigarettes per year. The factory is currently operating at half capacity producing 11 billion cigarettes each year. According to a Trade Ministry official, starting capital for the project would have been no less than $20 million, with 50 percent of the shares held by the government, and the other 50 by Reynolds.

Transcaucasia and Central Asia

UN Denies Sanctioning Abkhazia Polls

· The UN Political Department said that the UN Secretary General's special envoy Eduard Brunner has never supported parliamentary elections in Abkhazia, and stressed that the UN will not sanction such elections, reported Itar-Tass on Saturday. Media reports that BRUNNER supported the idea of holding parliamentary elections in Abkhazia were false, according to a Department statement handed to Georgian permanent representative to the UN Pyotr Chkheidze. The statement was released by the Georgian Foreign Ministry on Saturday. On October 2, the Georgian parliament passed a resolution saying that the results of Abkhazian elections, scheduled for November 23, will be invalid because about 70 percent of Abkhazia's population have been expelled from the republic.

Ramco Energy in Georgia

· Scotland's Ramco Energy Chairman Stephen REMP met with Georgian officials on Friday, telling reporters, "Georgia does not exist on the map as an oil country yet. But Ramco would like to be here as soon as possible." REMP met with President Eduard SHEVARDNADZE and agreed to send specialists to Georgia soon to define possible exploration and development projects, reported Reuters. Ramco holds a 2.1 percent stake in the $8 billion Azerbaijan International Operating Company (AIOC), which will send a portion of its early oil output through Georgia. The company has expressed interest in Georgia, where local officials have estimated offshore oil reserves at 200-300 million barrels.

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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