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

Thursday, October 24, 1996

Lebed versus the Interior Ministry

· The Russian Interior Ministry has handed over to the General Prosecutor's office documents which "confirm every word" of allegations that former Security Council secretary Aleksandr LEBED was plotting to take over power in Russia, reported Itar-Tass. Interior Minister Anatoly KULIKOV last week told reporters that LEBED was creating a paramilitary force and parallel power structure in order to take over power in Russia by force.

This week's Argumenty i Fakty features an interview with Lebed in which he mocks the Interior Ministry's charges. "Where are the crowds or the lists of plotters caught by our esteemed interior minister? Where are their bases? Where do they store their arms? Where are these Chechens coming the capital in droves? It is the purest fiction."

Korzhakov Tells Yeltsin to Step Down

· Former presidential guards chief Aleksandr KORZHAKOV described Russian President Boris YELTSIN an "ill old man" and urged him to step down and hold new presidential elections, in an interview in the Guardian, published Wednesday. "The country needs an active president. It is rolling down the hill fast ... In the constitution it is written that in the case of a persistent loss of working ability ... then [Prime Minister Viktor] CHERNOMYRDIN must take the reins," he told the British newspaper, according to the Associated Press (AP). KORZHAKOV also charged that YELTSIN is being manipulated by his daughter

Russian Federation

Politics

Chernomyrdin and Chubais at the FSB

· In an extraordinary show of government weakness, Russian Prime Minister Viktor Chernomyrdin and presidential chief-of-staff Anatoly CHUBAIS met with senior officials of the Federal Security Service (FSB) Thursday at Lubyanka. The premier accused "some persons and groups" of plotting to undermine the country's security, said today's Nezavisimaya Gazeta. He said those forces were trying "to use the process of democratic transformations in the country to form extremist, paramilitary, terrorist, and other units," whose activities seriously threaten state security. He also warned of growing social tension, "the anxiety, disappointment, and even the people's open mistrust of the state structures."

"Nor can we help noticing the thirst for a strong-arm rule, for outwardly simple and effective methods which actually presuppose the use of force and repercussions in resolving the complicated problems," added Chernomyrdin. He said he believes that the Russian people have a weakness for unconstitutional methods of solving crisis situations.

Comment: Intercon sources in Moscow familiar with the meeting said that CHUBAIS warned the FSB that a dramatic attempt to destabilize the government would occur in the next few weeks. The two officials sought to gain the support of the FSB against any possible provocation. However, some believe that there is no actual threat. A few even speculated that the real goal of the action would be as a pretext for the arrest of LEBED and possibly KORZHAKOV. One thing is clear from this: the ambitions of CHUBAIS, seen in his ongoing purge within the presidential apparatus, is negatively affecting the governing of the country and the confidence of the population.

Today's News Highlights

Russia

Rare Metals Output Planned

Aircraft Sector Debt Reschedul.

Kodak Opens Theater in Moscow

Lukoil in Algeria Project

Spotlight on Telecommunications

Transcaucasia & Central Asia

Russia and the Caspian

Statoil in Azeri Oil Exploration

Turkey-Armenia Border Post

Kazakh Energy Sector Privat.

Politics-Economics-Business

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Thursday

October 24, 1996

Intercon's Daily

Thursday Tidbit

Aviastar in Ulyanovsk, Saratovsky Aviatsionny Zavod, Aviakor in Samara, and VASO in Voronezh.

Russia Plans Rare Metals Output

· The Russian Nuclear Energy Ministry has worked out a program to begin production of rare-earth materials at defense plants that have been converted to civilian production. The $149.5 million program calls for increasing production of oxides of rare-earth elements to about 10,000 tons at four plants in 1996-2000, Georgy Kostin, chairman of the State Duma Committee for Conversion and High Technologies, told Itar-Tass on Wednesday.

In 1991, the former Soviet Union produced 8,500 tons of rare materials. The main producers were Estonia, Ukraine, Kazakhstan, and Kyrgyzstan. Some 1,000-1,500 tons were exported annually, primarily to the US, France, and Japan. About 60-80 percent of all rare materials produced in 1991 came from plants owned by the Nuclear Ministry where they were extracted along with uranium. Currently, Russia has practically no facilities to produce rare-earth materials and must import them, said KOSTIN.

Business

Kodak Opens Theater in Moscow

· US Kodak Co. announced Wednesday that Kodak Cinema World, an entertainment complex with a 480-seat showplace theater, which opened October 17 in Moscow's Pushkin Square, is a rousing success, said a company press release. The cinema and retail entertainment complex, owned by Kodak and managed by Golden Ring Entertainment (GRE), is part of Kodak's efforts to reinvigorate the Russian film industry, said the release.

Lukoil in Algerian Oil Project

· Russian oil conglomerate Lukoil company and Algerian state oil and gas company Sonatrach signed a protocol of intent in Moscow Wednesday to jointly develop hydrocarbon deposits in Algeria, reported Reuters, citing a Lukoil statement. The deposits cited in the protocol are believed to contain about 70 million tons of oil. Lukoil President Vagit Alekperov said that the deal signaled the return of Russia's largest crude producer to the Mediterranean. He said Lukoil does not plan to include its strategic partners—Italy's Agip SpA and US ARCO, both of whom are involved in other oil projects in Algeria.

Although

Turkmenistan is taking a step

in the right direction by opening an

Institute for Democracy and Human Rights,

there seems to be a bit of confusion as to the

meaning of the term. Turkmenistan's authoritarian

President Saparmurad NIYAZOV formally opened the new government agency on Wednesday, stating that its purpose is to protect the presidency "from the influence of the other branches of power," reported the

Associated Press (AP). Last December,

the New York-based pro-democracy group

Freedom House gave Turkmenistan its

lowest rating for political rights

and civil liberties.

Tatyana DYACHENKO and his chief-of-staff Anatoly CHUBAIS, which has brought about a situation that is "extremely dangerous for Russia. I wouldn't like things to get to the level of popular revolt, but events are moving that way."

These remarks nearly echo ones made by another former close YELTSIN advisor, Nikolai YEGOROV, in an interview published in Tuesday's Komsomolskaya Pravda. They also support charges by former Security Council chief Aleksandr LEBED, who has recently allied himself with KORZHAKOV, that CHUBAIS is trying to usurp power in Russia. CHUBAIS and DYACHENKO are seen as the forces behind the ousters of LEBED and KORZAHKOV from their positions close to the president.

Economy

Ruble = 5,445/$1.00 (NY rate)

Ruble = 5,444/$1.00 (CB rate)

Ruble = 5,439|5,449/$1.00 (buy|sell rates)

Aircraft Sector Debt Rescheduling Discussed

· First Deputy Prime Minister Aleksei Bolshakov told a government meeting Wednesday that the revitalization of the Russian civil aircraft industry is impossible without rescheduling its debts. "This is one of the conditions for launching the mass production of finished prototypes of aircraft," he is quoted by Itar-Tass as saying. Bolshakov ordered ministries and departments in charge of aircraft companies to submit soon a draft debt rescheduling program for several manufacturers of civil aircraft. The scheme will initially involve joint-stock companies

When you need to know it as it happens

Politics-Economics-Business

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Thursday

October 24, 1996

Intercon's Daily

Economic Spotlight:

The Russian Telecommunications Industry

During a presentation to a meeting of the Russian-American Chamber of Commerce in Washington, DC on Wednesday, Deputy Communications Minister Nikolai POZHITKOV highlighted positive trends in all sectors of the telecommunications industry and the potential for expanded growth in the twenty-first century. He maintained that federal legislation and presidential decrees passed since 1995 have provided stability and a foundation for growth in the telecommunications sector. He stated that the number of financing options for telecommunications firms, ranging from intergovernmental credits to stock purchases in privatized entities have fostered significant growth in the industry.

Currently, 22 out of 86 Russian joint stock telecommunications companies, including Rostelekom and Svyazinvest, are among the top 200 companies in Russia, with a total market capitalization of 16.7 trillion rubles ($3.3 billion), said POZHITKOV. In 1995, the total gross revenue of the telecommunications industry was 27.3 trillion rubles, accounting for roughly 1.6 percent of Russia's gross domestic product (GDP). The telecommunications industry's profit totaled 7.4 trillion rubles ($1.5 billion) in 1995, three times that of 1994.

The Communications Ministry in 1995 invested some 400 million rubles in the development of local telecommunications networks, resulting in the installa

tion of 360,000 telephone lines—24 percent of the phone lines in operation last year. According to POZHITKOV, the Ministry will invest some two trillion rubles this year for the introduction of up to 900,000 telephone lines. Over the next 10 years, the Ministry aims to deploy a national overlay network with some 20 million telephone lines, 50 long distance exchanges, 50,000 km. of trunk digital lines, and seven international gateways.

Foreign investment in the telecommunications sector has skyrocketed over the past five years, and currently accounts for over 50 percent of total investment in the industry. POZHITKOV praised the activities of foreign investors in the integration of the Russian telecommunications sector into the world community. "With the completion of the Moscow-Khabarovsk international digital microwave line and the Khabarovsk-Japan-South Korea fiber optic line, Russia was able to close the world telecommunications loop and solve the problem of providing international communications services in to the next decade," POZHITKOV stated.

He also commended the work of the 50X50 digital overlay project, as well as telecommunications links connecting Italy, Turkey, Ukraine, and Russia. When asked about the failed deal between Italy's Stet and the Russian government over the privatization of the Svyazinvest holding company, the Minister commented that "Stet was a disgrace," but the government plans to announce the terms of the new tender once a government resolution is issued.

When you need to know it as it happens

Politics-Economics-Business

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Thursday

October 24, 1996

Intercon's Daily

Transcaucasia and Central Asia

Russia to Budge on Caspian Status Issue?

· The deputy foreign ministers of the five Caspian Sea littoral states met in Tehran today to discuss how to divide subsoil resources of the sea, reported Xinhua. Russia, with the support of Iran, has been arguing that the body should be declared a lake and that subsoil resources beyond 20 miles from the coast be shared. Azerbaijan, Kazakhstan, and Turkmenistan have insisted that Caspian's legal status, as a sea, should remain and its resources divided between the five states. The stakes are huge oil and gas deposits, as the Caspian ranks eighth in the world in terms of discovered oil reserves, and much of the seabed remains unexplored.

According to Xinhua, a call has been made to extend the area of the continental shelf to 40 miles instead of the 20 miles previously proposed, and for the rest to become a common area. An unidentified Russian government official told Interfax on Tuesday that Russia may alter its stance on the Caspian. "In our view, the compromise may be in considering the national sectors of the Sea those areas 35-40 miles (20-30 km) from the shores of each Caspian state," said the official. However, Azerbaijan has already agreed to allow several international consortium develop its offshore oil deposits, some of which are more than 40 miles off the coast, and is not likely to agree to the new proposal.

Statoil to Begin Azeri Oil Exploration

· Norway's Statoil said today that Azeri authorities had given it the go ahead for a three-year exploration phase in the Shakh Deniz area of the Caspian Sea, reported Reuters, citing Statoil's Status Weekly newsletter. The area is believed to hold approximately 2.5 billion barrels of oil, and is considered one of the most promising prospects in the Azeri sector of the Caspian. The work program will probably begin next spring, said Statoil. An international consortium composed of Statoil, British Petroleum, Azeri state oil company SOCAR, Russia's Lukoil,

France's Elf, the National Iranian Oil Co., and Turkey's state-run TPAO, is involved in the project.

Turkey-Armenia Border Post to be Opened

· Turkish Foreign Minister Tansu Ciller announced plans Wednesday to open a border crossing with Armenia, with which Turkey currently has no diplomatic ties, reported United Press International (UPI). Opening the border gate at Akyaka between Turkey's Kars province to Armenia's Leninakan province has long been proposed in Turkey, but neighboring Azerbaijan had opposed the move. Armenia and Azerbaijan have been at war since 1988 over Nagorno-Karabakh. However, the opening of the border post would be economically, as well as diplomatically significant. Illegal border trade is rampant in the area. Local Turkish chambers of commerce and small business groups have pressed the Turkish government to open the post.

Kazakhstan Privatizing Energy Sector

· Kazakh State Property Management Committee head Sarybai KALMURZAYEV announced Wednesday that the government is completing preparations to privatize the country's oil and gas sector. The Chimkent oil refinery and oil drilling companies in Aktyubinsk, Atyrau, and Mangystau regions are ready to be sold, reported RIA Novosti. Tenders have already opened for Atyrau-based oil processing and chemical plants. Other tenders will open on November 1, including one to manage sections of the country's gas pipeline transport system for 10-15 years, which covers links in western Kazakhstan and connections to the Russian and Central Asian systems. Gaz de France, US Enron, and Argentina's Bridas are expected to bid, said Reuters. Other tenders will sell the Atyrau refinery, the Embaneft oil company, and other unnamed enterprises.

Societe Generale May Open in Uzbekistan

· A delegation from France's Societe Generale, headed by the bank's president and general manager, will visit Uzbekistan at the end of October to discuss opening an office in Tashkent.

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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