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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

Wednesday, October 23, 1996

staff until June, when he was removed in favor of Anatoly CHUBAIS and put in charge of the administration of the southern Krasnodar region. He said that YELTSIN did not know what was going on in Russia or within the Kremlin, where political infighting was increasingly threatening the country. "The best thing is to call early elections," said Yegorov. The country "is badly in need of a full-force president—and effective laws."

Yegorov sharply criticized his successor Chubais, accusing him of wooing business interests and seeking excessive power. "Today Chubais has two deputies from Most Bank," one of Russia's most powerful banks, United Press International (UPI) cited the article as saying. "One is in charge of the Kremlin staff, another in charge of analysis and forecasting. Is that normal? I don't think so."

Furthermore, he charged that CHUBAIS had manipulated YELTSIN's younger daughter, Tatyana DYACHENKO, to increase his influence over the president. He suggested that DYACHENKO was used by CHUBAIS and Most Bank president GUSINSKY to bring about the ouster of Presidential Security Guards (SPB) chief Aleksandr KORZHAKOV. CHUBAIS is purging all but his own cronies from the Kremlin, YEGOROV said. "Some people compare the situation with that in 1917—the same feeling that nobody is running the country, the same Rasputin-esque intrigues around the head of state," today's Financial Times cited him as saying in the article.

Russian Federation

Politics

Lebed Heaps Scorn and Blame on Chubais

· Former Russian Security Council secretary Aleksandr LEBED appeared on ABC TV's "Nightline" Tuesday night and charged presidential chief-of-staff Anatoly CHUBAIS with perpetrating a complex scheme to take over power in Russia. He charged that CHUBAIS plans to engineer the dismissal of Prime Minister Viktor CHERNOMYRDIN, by the middle of next month and have himself named premier so that he can run Russia. LEBED said that CHUBAIS had already usurped a great deal of power—he controls access to YELTSIN, represents the president on a new top level executive-legislative consultative council, and sits on the new emergency tax commission—and blamed CHUBAIS for his removal last week.

Comment: Although it is apparent that a power struggle is going on between CHUBAIS (a new young reformer) and CHERNOMYRDIN (an old red director), it not at all clear that it will be played out as LEBED described. For instance, it should be noted that CHUBAIS has little, if any, support in the Russian State Duma, and it is highly unlikely that he would ever be confirmed by parliament were he to be named prime minister. During the press conference following his ouster, LEBED also claimed that documents were being prepared for the dismissal of Federal Security Service (FSB) chief Nikolai KOVALYOV, but this has not yet occured.

Yegorov Criticizes Yeltsin/Chubais

· Krasnodar Krai governor Nikolai Yegorov called on Russian President Boris Yeltsin to step down and hold early presidential elections in an interview with Komsomolskaya Pravda, published Tuesday. YEGOROV was the president's chief-of-

Today's News Highlights

Russia

CIA Questions Nuclear Safety

Tax Commission Results

Central Bank to Crack Down?

October Inflation Seen Up

Nuclear Power Workers Strike

European Republics

Ukraine Plans for Kerch

Transcaucasia & Central Asia

UN Tells Abkhaz No Elections

ML Cass in Kazakhstan

Politics-Economics-Business

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Wednesday

October 23, 1996

Intercon's Daily

Yegorov is a former Nationalities Minister and supporter of Russia's intervention in Chechnya. He was fired in June 1995 following the Budyennovsk crisis (when Chechen rebels took a Russian hospital hostage), but was named a presidential advisor on national and regional policy in August 1995. He is a longtime YELTSIN supporter and his attack against the president can likely be attributed to the upcoming gubernatorial election in Krasnodar. On Sunday, voters in the southern region, which is traditionally anti-reform and anti-YELTSIN, will decide whether to retain YEGOROV as their governor.

CIA Questions Russian Nuclear Safety

· The financial crisis in the Russian military has caused a weakening of central control over nuclear forces, but the risk of an unauthorized launch or blackmail by disgruntled units remains low, according to a classified CIA report, cited in Tuesday's Washington Times. "The Russian nuclear command and control system is being subjected to stress as a result of wrenching social change, economic hardship, and malaise within the armed forces," it said.

The report, entitled "Prospects for Unsanctioned Use of Russian Nuclear Weapons," found that tactical nuclear weapons, such as torpedoes and battlefield nuclear weapons, are those most at risk. The CIA is particularly worried about nuclear forces units in the remote Far East, were conditions are terrible and morale extremely low.

US State Department spokesman Nicholas BURNS played down the possible Russian nuclear threat today by saying: "The Pentagon, the State Department, and the White House all agree, having looked at this question very carefully ... that the Russian government has control over its nuclear weapons forces and over the nuclear material in its stockpile."

Pentagon spokesman Kenneth BACON said Tuesday his agency believes that Russia's strategic missile troops are well-disciplined and commanded, and that overall security is good.

Economy

Ruble = 5,433/$1.00 (NY rate)

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

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

Tax Commission Names Four Bankruptcies

· During the first session of Russia's Extraordinary Temporary Commission on Tax and Budget Discipline on Tuesday, Prime Minister Viktor Chernomyrdin announced that the government will begin bankruptcy proceedings against four major companies, who have run up huge tax debts to the government. President Boris Yeltsin set up the Commission two weeks ago with CHERNOMYRDIN as chairman and presidential chief-of-staff Anatoly CHUBAIS as his deputy. At that time, 17 companies were being targeted for bankruptcy for having excessive tax debts. Since then, 13 of the 17 have found the means to balance their budgets and have been taken off the list, reported Russian Public Television (ORT). The four remaining companies—automaker Moskvich (which owes 271 billion rubles), oil company Krasnodarnefteorgsintez (93 billion rubles), aluminum company Achinsky Glinozemny Kombinat (88 billion rubles) and truckmaker KamAZ (86 billion rubles), will be taken to bankruptcy court.

Chernomyrdin told reporters after the meeting that the commission decided to dismiss a deputy head of the State Tax Service and two customs officials for unjustified granting of tax benefits. In addition, Finance Minister Aleksandr LIVSHITS and State Tax Service head Vitaly ARTYUKOV had received a warning to be more diligent in their collection of tax revenues for the budget. Chubais said that no more than 45 percent of the planned budget revenues were collected in October, and that the commission plans radical measures to change the situation. The next meeting of the commission will address the problem of illegal exports of foreign currency, which reached almost $5 billion last year, said Chernomyrdin.

Meanwhile, KamAZ spokesman Nail Galiullin told the Prime-TASS on Tuesday that his company had been put on the list of companies that may be declared bankrupt "by mistake." According to an April presidential decree and government resolution, the plant, along with 15 defense companies in Tatarstan, was freed from payments to the budget, and its 86-billion-ruble debt was written off as a government investment credit for a term of five years.

Central Bank To Pull Licenses?

· Russia's Central Bank is considering recalling

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	Wednesday		October 23, 1996
	Intercon's Daily
	130 commercial bank licenses, forcing banks which cannot work efficiently under conditions of low inflation and lower interest rates to withdraw from the market, reported today's Journal of Commerce. Bank deputy chairman Aleksandr TURBANOV said on Tuesday that another 200 commercial banks have finished the third quarter with a negative balance and could face the same fate. The official stressed that there is no cause for alarm about the banking sector: "Although the number of commercial banks has decreased, their aggregate capital is steadily increasing," he said. In 1995, 86 banks were created and 200 licenses were revoked, while in 1996, 16 banks have been created and 225 closed down. The deputy chairman sees this as an indicator that the sector is becoming more sound. TURBANOV pointed out that only half of Russia's 2,000 banks and financial companies meet international standards, according to RIA Novosti. October Inflation Jump Predicted · Russia's monthly inflation is forecast to reach 1.5 percent in October, due to seasonal factors, said Peter BOONE, an analyst from the Russian-European Center for Economic Policy and member of the London School of Economics, reported RIA Novosti on Tuesday. He added that he does not see any danger of a significant rise in inflation. September inflation was only 0.3 percent. Workers Strike at Two Nuclear Plants · Employees at two of Russia's nine nuclear power plants went on strike Monday to protest wage arrears. A spokesman for Russian nuclear concern Rosenergoatom told Itar-Tass that the Smolensk and Kalinin nuclear plants ceased operations unrelated to safety without shutting down reactors. Workers at the Smolensk plant have not been paid since June, while Kalinin plant workers are still owed wages from July. The State Atomic Inspection Committee (Rosatomnadzor) said it would tighten up safety inspections at the plants during the strike. Russian Gold Stocks Up · As of October 1, the Russian Central Bank's gold reserves had reached 380 tons, reported today's Kuranty, citing Bank deputy chairman Aleksandr Potemkin. This year the Central Bank has purchased approximately 90 tons of gold.	Business Xavier Join Oil Venture Progressing · Houston-based Xavier Corp. released an update its Black Gold joint venture, in which Xavier holds a 37.5 percent interest, on Tuesday. The Black Gold joint venture (JV) was formed to enhance oil production from six existing oil fields in the southern Russian Stavropol Krai. The regional oil company Stavropolneftegaz holds a 30 percent stake in the venture, while the Stavropol regional government has a 20 percent interest. According to the press release, contract negotiations between the JV partners and discussions with federal regulatory bodies have continued intermittently since the spring of 1996, but are expected to be concluded satisfactorily through continued cooperation with state regulatory agency Roskomnedra. Xavier is principally engaged in the acquisition and development of natural resources, primarily oil and gas, and secondarily provides services to the oil and gas industry. Xavier also has operations in producing fields in the West Siberian Basin.
		European Republics Ukraine to Sell off Major Utility · Ukraine's State Property Fund has approved a plan to privatize the energy producer Dneproenergo (Kiev), reported Prime-Tass. Under the plan, 26.13 percent of Dneproenergo's shares will be auctioned off with the requirement that winner make a $100 million investment in the enterprise. The government will retain a 51 percent stake, and the remaining 22.87 percent will be exchanged for privatization certificates. The equity capital of the future open joint-stock company Dneproenergo will be at 22.44 million hryvnia ($12.4 million), and the face value of one share will be 2.5 hryvnia ($1.39). Dneproenergo includes the Zaporozhye, Krivoy Rog, and Pridniprovska (Kiev) electric power stations.


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Wednesday

October 23, 1996

Intercon's Daily

Ukraine Wants Oil Terminal at Kerch

· The Ukrainian government has conferred international status on the Black Sea port of Kerch, reported Prime-TASS news agency on Tuesday. Kerch is now open to all foreign cargo ships (except for naval vessels. The government has also recommended that the countries transport and trade ministries, as well as the national oil committee, begin negotiations with Russian oil companies on the possibility of building an oil terminal at Kerch.

Transcaucasia and Central Asia

UN Tells Abkhazia to Cancel Elections

· The UN Security Council on Tuesday called on separatists in the Abkhazia region of Georgia to cancel parliamentary elections scheduled for next month until a political settlement for the region has been reached. "The Security Council is deeply concerned at the announcement made by the Abkhaz aide that so-called parliamentary elections would be held on November 23, 1996," said a statement read out at the meeting. "The holding of such elections would only be possible after the determination through negotiations of the political status of Abkhazia respecting the sovereignty and territorial integrity of Georgia within its internationally-recognized boundaries."

The Council also adopted a resolution to set up a human rights office in Abkhazia, which will be supported by the 120-member UN Observer Mission in Georgia (UNOMIG). The establishment of the human rights office was agreed upon between the two parties in Georgia, the Organization for Security and Cooperation in Europe (OSCE), and the UN High Commissioner on Human Rights.

Italian Co. Wins AIOC Pipeline Tender

· The 11-member oil consortium Azerbaijan International Operating Company (AIOC) today declared Italy's Saipem SpA the winner of a $24 million tender to build offshore oil and gas pipelines, reported Reuters, citing an AIOC press release. Saipem

will build a gas pipeline (47 km long) linking the state-owned Oil Rocks offshore drilling platform in the Caspian Sea and AIOC's Chirag-1 platform, and a crude pipeline (182 km long) from Chirag-1 to Baku's Sanchagal terminal. The release said that work on both links would begin in January 1997. The pipelines are part of the AIOC's early oil production program. The AIOC is involved in an $8 billion project to develop and export three oilfields in the Azeri sector of the Caspian.

ML Cass to Develop Karazhanbas Field

· Canada's ML Cass Petroleum Corp. has signed a letter of intent with Triton-Vuko Energy Group Ltd. to purchase and develop the Karazhanbas onshore and offshore oil field in Kazakhstan, said a company press release. ML Cass will carry Triton-Vuko for a 10 percent interest before payout and convert the carried interest to a 40 percent working interest after the company has recovered 130 percent of all capital expenditures on the development of the properties.

ML Cass will operate and own 100 percent of the Kazakh field. The transaction is subject to customary terms and conditions including successful negotiations and execution of a definitive agreement. ML Cass will raise $25 million before year end to commence further development of the fields and expects to raise $100 million during the first quarter of 1997. The financing will be subject to shareholder's approval. A meeting is anticipated during December.

In addition, Vladimir KATIC, president of Triton, has been nominated as the sixth member of the Board of Directors of ML Cass, and agreed to serve, if elected. KATIC previously worked for Aramco and was responsible for that company's northern sector production of 2.5 million barrels of oil per day. As President of Triton Engineering, KATIC supervised an offshore drilling program in the Mediterranean, using horizontal drilling to increase field production for the National Iranian Oil Company by 350,000 barrels per day. His group will supervise the development drilling in Kazakhstan.

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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