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 22, 1996

Russian Federation

Politics

Kuchma to Meet Yeltsin in Moscow

· During a telephone conversation Monday, Russian President Boris Yeltsin invited his Ukrainian counterpart Leonid Kuchma to have a working meeting in Moscow on October 24. Kuchma will be visiting Russia at that time to participate in the summit meeting of the Black Sea Economic Cooperation Forum, said Ukraine's presidential press service.

Early next month, Russian Prime Minister Viktor Chernomyrdin is to make an official visit to Kiev. Deputy Prime Minister Valery Serov told Interfax on Monday that: "A large package of bilateral agreements, including agreements on the division of the Black Sea Fleet and the status of Sevastopol, are expected to be concluded during Chernomyrdin's stay in Kiev." However, the friendship and cooperation treaty between the two countries, which has been in the works since the breakup of the Soviet Union, will not be signed, he said.

CHERNOMYRDIN's trip to Ukraine to sign a treaty on the Black Sea Fleet has been postponed several times due to continued differences over the details of the division, and it is not at all clear that it will be ready for signing next month. Last week, the Russian State Duma infuriated Ukraine by passing a resolution calling for the termination of the division of the Black Sea Fleet. In response, the Ukrainian parliament adopted a statement saying that, if the Duma finally approves the document, it "will insist on the immediate pullout of foreign military bases from Ukraine's territory," reported today's Nezavisimaya Gazeta. Moreover, Moscow Mayor Yuri LUZHKOV on Monday reiterated his insistence that Sevastopol is a Russian city and should not be placed solely under Ukrainian control.

Economy

Ruble = 5,432/$1.00 (NY rate)

Ruble = 5,440/$1.00 (CB rate)

Ruble = 5,435|5,445/$1.00 (buy|sell rates)

Energy, Rail Prices Cut

· Russian President Boris YELTSIN has signed a decree ordering a reduction in electricity prices for industrial and residential users by an average of 10 percent over August 1 levels, effective November 1, reported today's Wall Street Journal. The decree also calls for regulating rail prices and freezing natural gas prices, pending the creation of a wholesale gas market in January. The wholesale gas market, which does not apply to residential customers, will base prices on distances that gas must travel to users. Currently, gas prices are the same in all regions of Russia—about 290,000 rubles per 1,000 cubic meters of gas. The new decree will gradually introduce a 30-35 percent difference between the minimum and maximum gas prices. In addition, the measure calls for wholesale electricity prices to be used in railway cargo transportation, which is expected to reduce the cost of cargo transportation.

Davydov on Russia-US Trade Relations

· Russian Deputy Prime Minister and Trade Minister Oleg Davydov has advocated the establishment of a Russo-American free trade zone. "At the next session of the [GORE-CHERNOMYRDIN] Commission, we wish to discuss with the US the

Today's News Highlights

Russia

Central Bank Goes Abroad

Gazprom ADS Issue a Success

European Republics

Lithuanian Election Results

Latvian Deputy PM Quits

Ukraine Sells Steel Co Stake

Transcaucasia & Central Asia

RJ Reynolds in Azerbaijan

Chevron Finds Azeri Oil

Japan $ for Turkmen Refinery

Politics-Economics-Business

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Tuesday

October 22, 1996

Intercon's Daily

Tuesday Tidbit

its qualitatively new character. Whereas we have imported from the United States for many long years much more than we sold to it, the picture is changing now: a positive balance is being observed in our trade with the US today," Davydov emphasized.

"By the end of 1996, the volume of Russia's trade turnover will equal approximately $140 billion," he stated. The positive trade balance will reach about $30 billion. "If we manage to continue to integrate Russia into the world economic space, to open up new markets for the sale of our goods, and to lift the obstacles now standing on the way of our export trade," Davydov stressed, "we will create additional favorable conditions for the development of Russia's industry and economy as a whole."

Central Bank Plans Foreign Subsidiaries

· The Russian Central Bank's board of directors has signed a letter of intent to establish two subsidiary banks, said RIA Novosti on Monday, citing the Bank's press service. Reportedly, one subsidiary, Cho Hoong Bank, will be founded in Seoul, and the other, Finance Bank A.C., will be set up in Istanbul.

Business

Gazprom ADS Issue Successful

· Russian gas monopoly Gazprom on Monday placed one percent of its equity with foreign investors at a price of $15.75 per American Depositary Share (ADS), raising $373.3 million to invest in developing the country's Siberian reserves, according to today's Financial Times. Despite recent political rumblings in Moscow, the issue attracted foreign investors in droves and price fell towards the top of the $14-16 range, announced when the global offering was announced two weeks ago. The pricing gives Gazprom an implied market value of $37 billion, making it one of the world's most valuable energy companies and doubling the notional worth of the Russian stock market, according to the Times.

The paper suggests that its success will prompt Gazprom to exercise its "greenshoe" option and expand the issue by 15 percent, which could increase the proceeds to a total of $429.3 million. About half the issue was placed in the US, with the remainder snapped up by European investors. Unconditional trading of Gazprom's DASs will begin on October 28 after the shares are admitted to the

As parliamentary

elections in Lithuania are at

hand, it would be interesting to take a

look at some of the country's quirky laws. The

following was taken from the Calendar of Legal

Lunacies: "Tired of sitting or standing next to smelly people when riding a bus? Then consider moving to Panevezys, Lithuania. Any person who is unbathed,

who is wearing filthy clothing, or has strong body odor may find himself in trouble! He can by law, be tossed

off of city buses and all other modes of public trans-portation. And in Kretinga, Lithuania, kissing while

riding a bus is strongly discouraged. Couples who

are seen taking part in this "licentious activity"

are taken to the local police station and

given a good tongue

lashing!"

possibility of working out a concept for such an approach to the development of our relations," he said in an interview with Itar-Tass in New York. According to Davydov, the US has not yet expressed a definite attitude toward Russia's idea. "However, it understands, at least, that further development of our cooperation can proceed only along the road of liberalization of our commercial and economic relations," he stated. He noted that the process of integration and creation of a free-trade zone between Russia and the European Union would begin in 1998.

"Today, all the barriers and restrictions, formerly applied to the Soviet Union, remain in force against Russia," Davydov stressed. Whereas the Soviet leadership tried to explain this by purely political reasons, the Minister believes that the economic factor is now predominant. "In order to lift the barriers, we must switch our economy over to market rails," Davydov stressed. "Today, we no longer have a planned economy, but neither do we have a market economy yet. We need to be aided on this road of reforms, primarily by facilitating our access to external markets," noted Davydov.

"Russia's main partner is the European Union, which accounts for 50 percent of the total turnover of goods," Davydov said. The second most important partner is the US. "We expect the volume of our trade turnover with the US to reach $7 billion in 1996," he stressed. "At the same time, it is necessary to note

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Politics-Economics-Business

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Tuesday

October 22, 1996

Intercon's Daily

London Stock Exchange. Each ADS represents 10 underlying Gazprom shares and will initially trade at about three times the price of the domestically-issued shares, it said.

ness," Cevers is quoted by Itar-Tass as saying. According to him, SHKELE uses authoritarian methods and insists his viewpoint is the only right one. "Shkele places himself above the Constitution and the parliament" which "endangers Latvia's development as a democratic and law-ruled state," Cevers said. Cevers also strongly disapproval of the draft budget forwarded by the government.

CEVERS is also the head of the Saimnieks party, which has the biggest parliamentary faction. Latvian President Guntis Ulmanis, met with Cevers earlier in the day and urged him to working out his differences with the premier and stressing that he hoped the Saimnieks party will not leave the Cabinet and prevent a government crisis.

Earlier this month, Latvian Finance Minister Aivars Kreituss resigned over differences with Saimnieks, which had recently expelled him from its ranks. The week before, his wife, Ilga Kreituse, was removed from the post of Latvian parliamentary speaker on the initiative of the Saimnieks party. She then resigned her membership in the party.

Ukraine to Sell Stake in Steel Co.

· Ukraine's State Property Fund announced on Monday that it will sell a 15 percent stake in the Zaporozhstal steel factory to a strategic foreign investor, reported Reuters. Zaporozhstal is one of 208 companies designated by the government to be sold to private investors. Zaporozhstal's authorized capital is 281.2 million hryvnia (about $156.2 million). The company is to be divided between employees (11.9 percent of shares), the state (25.1 percent), while 10 percent will be sold for privatization certificates and another 38 percent will be made available for direct investment. During January-September, Zaporozhstal produced 1.5 million tons of pig iron, 1.7 million tons of steel, about 1.4 million tons of rolled steel, and 28.2 million tons of tin.

Ukraine Creates Nuclear Company

· Ukraine plans to form a state-run national nuclear energy company, called Energoatom, by December 1 which will encompass the country's nuclear power stations and their infrastructure, reported Itar-Tass. In conjunction with government bodies, Energoatom will fix tariffs on electricity, sell electricity on the energy market, purchase nuclear fuel, and work out technical and economic norms. The goals of the new

European Republics

Conservatives Win in Lithuania

· As anticipated, Lithuania's rightist opposition Homeland Union party has staged a comeback and is the apparent winner of Sunday's parliamentary elections. With more than half of the votes counted, Homeland had received 29 percent of the vote, or 32 of 70 seats to be distributed to parties receiving five percent of the vote. The Christian Democratic party, an ally of Homeland, garnered 11 percent of the vote, or 12 seats, while the Populist Center Union gained eight percent (nine seats), and the Social Democrats earned seven percent (seven seats). Voter turnout was at low 52 percent. New elections will be called in five districts where less than 40 percent of voters took part. Official results will be released October 27. Another 71 seats will be awarded to individuals on a majority-ballot basis on November 10.

The election brings a reversal of political fortunes. In 1992, Homeland was ousted by the LDLP which won 70 seats to become the ruling party. On Sunday, the LDLP, formerly the Communists, gained only 10 percent, or 10 seats, and now faces replacement by a Homeland-led government.

Homeland leader and former president Vytautas LANDSBERGIS has announced that Homeland will build a new coalition government with the Christian Democratic Party. If the two parties do not have a majority of seats, they will negotiate with other parties, primarily the Center Union. The coalition plans to nominate Homeland deputy party leader Gediminas VAGNORIUS as candidate for prime minister. He served as premier from January 1991 to July 1992. LANDSBERGIS is expected to seek the position of parliamentary speaker and prepare for a presidential bid in 1998.

Latvian Deputy PM Resigns

· Latvian Deputy Prime Minister Ziedonis Cevers resigned from the government on Monday, citing an inability to work with Prime Minister Andris SHkele. "Latvia is not a privately-owned holding company which can be ruled by methods adopted in busi

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Tuesday

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Intercon's Daily

company are to improve the electricity supply for industrial and residential customers and increase the efficiency of nuclear power plants.

Transcaucasia and Central Asia

Turkophone Summit in Uzbekistan

· The leaders of six Turkic-speaking countries ended their fourth summit meeting Tuesday in Tashkent by adopting a joint declaration reiterating their commitment to the development of bilateral and multilateral relations. The Tashkent Declaration was signed by presidents Geidar Aliyev of Azerbaijan, Nursultan Nazarbayev of Kazakhstan, Saparmurat Niyazov of Turkmenistan, Suleiman Demirel of Turkey, Islam Karimov of Uzbekistan, and Askar Akayev of Kyrgyzstan. They discussed cooperation in science and culture, as well as in the fields of transportation and trade, and agreed to facilitate the restoration of the Great Silk Road. The also discussed international and regional problems and condemned terrorism and separatism. Bilateral talks and consultations are expected to follow the official part of the meeting today.

RJ Reynolds in Azerbaijan

· R.J. Reynolds International announced on Monday that it had reached an agreement with the government of Azerbaijan to form a joint venture with Baku Tobacco Factory, the country's only cigarette maker, reported Dow Jones. In a press release, R.J. Reynolds said it would invest an undisclosed amount of assets and capital in exchange for a 50 percent interest in the venture, to be called RJR Tobacco Baku. The remaining 50 percent will be owned by the Azeri government. R.J. Reynolds will manage the venture. Baku Tobacco produced about 3.5 billion cigarettes in 1995 and has a 30 percent share of the Azeri market. R.J. Reynolds aims to double output by the year 2000. R.J. Reynolds International is a unit of RJR Nabisco Holding Corp.

R.J. Reynolds has already invested in the cigarette industries of Russia, Kazakhstan, and Ukraine, but

a plan to set up a joint venture in Belarus fell through this week due to opposition from the President.

Chevron Finds Oil and Gas in Azerbaijan

· Azerbaijan state oil company SOCAR chief expert Arif Narimanov recently disclosed that vast oil and gas deposits had been discovered in the southern part of the Azeri sector of the Caspian Sea, reported Business Segodnya last week. Exploration was conducted jointly by the Azerbaijan's Azergazmorneftefizika company and US Chevron. According to preliminary estimates, these deposits hold reserves of up to two billion tons of oil and about seven trillion cubic meters of natural gas.

Japanese Loan for Turkmen Refinery

· The Japanese Export-Import Bank said today that it had agreed with commercial banks to provide 13.62 billion yen (about $120 million) in credits to Turkmenistan to help upgrade its oil refining industry, reported Reuters. The Ex-Im Bank will provide 60 percent of the total, while the remainder will be co-financed by three Japanese banks and lead managed by Bank of Tokyo-Mitsubishi. The loan will enable Turkmenistan to produce unleaded gasoline at the country largest refinery.

Kyrgyz Security Minister in Car Accident

· Kyrgyzstan's security minister Anarbek BAKAYEV remained in serious condition at the hospital today after he was gravely injured in an auto accident Monday, reported RIA Novosti, citing the ministry's press service. BAKAYEV, 48, was hurt when his car was hit by a truck as it returned from the airport. The truck driver is believed to have been drunk.

Updates

Chechnya: Chechen rebel leader Zelimkhan Yandarbiyev issued a decree Monday appointing Khozh-Akhmed Yarikhanov as president of the Southern Oil Company. Yarikhanov was head of the Chechen delegation to last year's peace negotiations with Moscow.

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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