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

Monday, October 28, 1996

was too sick to rule and should step down, as well as charging the president's daughter of influencing YELTSIN on behalf of presidential chief of staff Anatoly CHUBAIS. He has repeatedly hinted that he has compromising information on government officials. Intercon reported last week that the Russian Prosecutor's office is investigating whether KORZHAKOV illegally collected information while in office, or whether he took secret documents with him when he left office.

Most of Sunday's Elections Inconclusive

· Gubernatorial elections were held in seven Russian regions on Sunday, but the voting has so far only proved conclusive in two areas—the Chita Oblast and the Khanty-Mansi autonomous okrug (district). According to preliminary returns, incumbent governor Ravil Geniatulin is leading in the Chita region, having received more than 30 percent of the vote. His closest competitor is businessman Yaroslav ShvyrIaev with about 22 percent. Chita election legislation requires a candidate to receive a minimum of 25 percent of the vote to win. In the Khanty-Mansi autonomous district, incumbent Aleksandr Filipenko won a second term, capturing more than 70 percent of the vote.

Runoff elections will be held in Kaluga Oblast and the Stravropol Krai, as none of the candidates in either region received the 50 percent support necessary to win outright. Of the five candidates vying for the Stavropol seat, Communist Aleksandr Chernogorov

Russian Federation

Politics

Yeltsin Cancels Meetings for Tests

· On doctors' orders, Russian President Boris YELTSIN has canceled all meetings scheduled for this week to undergo testing needed before his heart bypass operation, chief presidential spokesman Sergei YASTRZEMBSKY announced today. "Planned preparations for the heart surgery have entered the final stage and the president will undergo a whole series of medical tests under a special regime in the next few days," he is quoted by the Associated Press (AP) as saying. A specific date for the surgery was not given. The tests will be conducted at the Barvikha sanatorium.

Korzhakov Retired from the Army

· Russian President Boris YELTSIN signed an order on Sunday relieving former Presidential Security Service (SBP) chief Aleksandr KORZHAKOV of his military duties and will apparently be stripped of his rank because of his recent negative public pronouncements about the President and his family, reported the Russian media. Despite his dismissal in June, KORZHAKOV continued to hold the rank of Lieutenant-General in the Russian army.

"After his firing on June 20, 1996, Lieutenant-General Aleksandr KORZHAKOV has come out with a series of lies concerning the Russian president and members of his family," said the order, which was released by the presidential press service today. "He has allowed himself to publish confidential information he obtained in office. KORZHAKOV's public threats to disclose information that he possesses are aimed at discrediting top state officials."

KORZHAKOV, once a close confidante of YELTSIN, told the Guardian newspaper last week that YELTSIN

Today's News Highlights

Russia

Rybkin Meets with Chechens

CB Changes Reserve Rules

European Republics

USDA on FSU Agriculture

Canadian Deals with Ukraine

Ukraine to Form Nuke Ministry

Transcaucasia & Central Asia

Georgian Optimistic on Eco.

Metromedia in Georgia

SOCAR-Kawasaki Gas Deal

Politics-Economics-Business

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October 28, 1996

Intercon's Daily

received the most support, taking 47.3 percent of the vote. In the runoff election, he will face incumbent Pyotr Marchenko, who got 37.6 percent of the vote on Sunday. In Kaluga, three pairs of governor and deputy governor candidates faced off, but none received the needed majority support. Local parliament chairman Valery Sudarenkov and his running mate earned 46.5 percent of the vote, while incumbent Oleg Savchenko and partner got 39.4 percent. The third pair, both of whom are named PUSHKIN, will not appear in the runoff.

In Krasnodar Krai, the election was ruled invalid because less than 50 percent of registered voters participated (the requirement in most Russian regions is only 25 percent). Only about 43 percent of voters took part on Sunday. According to preliminary returns, former chairman of the regional parliament Nikolai Kondratenko received 57.1 percent of the vote, while incumbent governor Nikolai Yegorov got 24.7 percent.

No results are yet available from the elections in the Aga Buryat or the Koryak autonomous districts.

Rybkin Holds First Talks with Chechens

· Newly-appointed Russian Security Council secretary Ivan RYBKIN met with Chechen separatists leaders on Sunday in Ingushetia, marking his first negotiating session in his capacity as replacement for Aleksandr LEBED. RYBKIN promised to abide by the agreements signed by LEBED and Chechen rebel military commander Aslan MASKHADOV. The two sides met for four hours.

Economy

Ruble = 5,456/$1.00 (NY rate)

Ruble = 5,447/$1.00 (CB rate)

Ruble = 5,437|5,457/$1.00 (buy|sell rates)

CB Amends Reserve Requirements

· Russian Central Bank chairman Sergei DUBININ on Friday announced changes to commercial banks' reserve requirements in a bid to strengthen the ruble, push down yields, and help the Central Bank build up its foreign exchange reserves. The Central Bank cut reserve ratios on short-term rubles accounts, but doubled the ratio on hard currency accounts, reported Reuters. "The situation with stabilizing inflation and the ruble rate allows us to set new param

eters for banking system development," DUBININ is quoted by Reuters as saying. Last week, the Central Bank also cut its discount and Lombard rates. Friday's changes mean that, beginning November 1, commercial banks will transfer few rubles to the Central Bank's reserve accounts. "This move will lead to an increase of money volume which will be available for the banks and they will give out credits more actively to the Russian economy," today's Journal of Commerce cited DUBININ as saying.

European Republics

USDA on FSU Agriculture

· The US Department of Agriculture (USDA) released a report on Friday, outlining trends in the agricultural sectors of former Soviet republics, which was cited by Futures World News (FWN). Although gross agricultural output in the former Soviet Union (FSU) is expected to decline in 1996, the drop should be significantly less than in 1995. Russia's gross agricultural output is expected to fall 3-5 percent this year, versus drops of 12 percent and eight percent in 1994 and 1995, respectively. However, in many smaller FSU countries which have experienced political/ethnic strife or serious economic restructuring during the last four years, including Armenia, Azerbaijan, Georgia, and Kyrgyzstan, agricultural output is projected to grow around five percent this year.

According to the USDA, improved grain crops in most FSU countries and stabilized livestock output in many of the smaller countries should slow the contraction of the FSU farm sector in 1996. However, continued downsizing of the much larger Russian,Ukrainian, and Kazakh livestock sectors continues to outweigh recovery in grain production, and is driving the overall fall in agricultural output. Animal numbers in Russia, Ukraine, and Kazakhstan are expected to drop an average of nearly 10 percent between January 1996 and January 1, 1997.

Despite weather-related difficulties in Ukraine and parts of Russia, total FSU grain output rose this year for the first time since 1992. As of October, USDA projects 1996/97 FSU grain output (including wheat and coarse grains) at 122.5 million tons cleanweight, up three percent from 1995/96. The increase is due to higher yields, which are projected up about six percent, as total area sown continues to shrink for the 16th straight year.

Politics-Economics-Business

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Within the FSU, agricultural trade policy continues generally to move away from controls on exports toward restrictions on imports. In particular, agricultural protectionism is growing in the more reformist nations of Russia, the Baltic States, and Ukraine.

Following record 1995 meat imports totaling about two million tons (including nearly 20 percent from other FSU countries), Russia is expected to import even more in 1996. Imports of red meats from outside the FSU during the first seven months of 1996 ran nearly 10 percent ahead of January-July 1995, while poultry meat imports were about a third greater. US sales of poultry meat (421,000 tons) to Russia for first-half 1996 were up 40 percent from the first half of 1995, but beef and pork exports were down.

Higher FSU grain output, fiscal austerity, and further downsizing of the FSU livestock sector should reduce 1996/97 (July/June) FSU grain imports to less than 10 million tons, a near-record low. The bulk of FSU grain import needs are likely to be satisfied within the region, as Ukraine and Kazakhstan remain sizeable wheat suppliers.

Results of Canadian Minister's Trip to Ukraine

· Canadian Foreign Minister Lloyd Axworthy on Friday ended his three-day visit to Ukraine after signing several bilateral economic cooperation agreements involving more than C$600 million (about $550 million). The projects include building a world trade center in Kiev and upgrading the Darnitsa thermal power plant in Kiev.

SNC-Lavalin announced Friday that it signed a letter of intent with major Kiev construction firm, Kievmiskbud, to build a business complex in the capital city, said a SNC-Lavalin press release. The planned complex would include a convention center, a hotel, an office tower, a shopping center and parking facilities. The project is currently valued at approximately C$400 million. The final concept and the exact value of the project will be determined during the next phases. Under the agreement, SNC-Lavalin must first seek out investors interested in participating in the financing of the project. Obtaining the commitment of a few key investors is an essential step to the continuation of the project. SNC-Lavalin has engineering-construction and manufacturing operations.

Canada's Northland Power signed a joint venture agreement with the Ukrainian government to run the Darnitsa power plant, but must find $110 million to finance the venture, called Ukr-Can Power. The Toronto-based company would operate the gas-powered plant and eventually take over 51 percent of its shares. Northland is to manage the plant until a new ownership arrangement is reached. The plant provides steam to several local industries and heating and hot water to about 300,000 residents.

Also last week, the Ukraine Enterprise Corporation (UEC), a private Canadian investment company, signed a $3.5 million deal to acquire 35 percent of Ukraine's Electron Bank. "Basically we're putting in equity of $3.5 million. We're trying to build the bank up as one of the leading banks of Ukraine," UEC Director Bohdan ONYSCHUK told Reuters. The Toronto-based UES will deliver the money in three tranches and will eventually hire foreign bankers to work at the Lviv bank to bring operations up to Western standards, said ONYSCHUK.

Ukraine to Create Nuclear Energy Ministry

· Ukraine's State Committee on Security and Defense decided on Saturday to establish a Nuclear Energy Ministry to coordinate the work of the country's five nuclear power plants. Ukrainian Security Council secretary Vladimir Gorbulin said the ministry will be responsible for the safety of nuclear power plants, ensuring the production of fuel for the plants, and supervising the use of foreign aid for the closure of the Chernobyl nuclear power plant, reported Itar-Tass. Some 40 percent of Ukraine's electricity is supplied by nuclear power plants.

Belarussian Privatization Minister Named

· Former collective farm chairman and presidential aide Vasily NOVAK has been appointed minister of privatization and state property by Belarussian President Aleksandr LUKASHENKO, reported Reuters. The post NOVAK will fill has been vacant for over a year. International financial organizations have criticized Belarus for its slow progress on privatization.

Transcaucasia and Central Asia

Georgia Expects Economic Recovery

· Presenting a plan for Georgia's social and economic development during 1996-2000, Econom

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ics Minister Lado Papava said that the country may witness an "economic miracle" with an annual growth rate exceeding 12 percent in the next five years, reported Itar-Tass on Sunday. He predicted that production would increase by 176-188 percent over the next five years. Moreover, gross domestic product (GDP) will soar by 76-88 percent, and its structure will improve due to an increase in the relative importance of industry and transport, he said.

According to PAPAVA, stabilization will lead to better living standards. Georgia's GDP per capita will increase by 78-85 percent with the unemployment rate falling to 5-6 percent of the workforce by the year

2000. He said that over 110,000 new jobs had been created in Georgia since the beginning of the year. The development plan was based on a presidential program for the country's social and economic development, a law on indicative planning, and agreements with the International Monetary Fund (IMF) and the World Bank.

Metromedia in Georgia

· US Metromedia International Telecommunications Inc. (MITI) has purchased a 49 percent ownership interest in Georgia's Magticom Ltd., reported Dow Jones. Terms of the deal were not disclosed. Metromedia—a division of Metromedia International Group entertainment, media and communications company—said it purchased the ownership through a joint venture, Telcell Wireless LLC, which it owns with Western Wireless Corp. cellular telephone operator. The other 51 percent of Magticom will be owned by Georgian companies Magti Ltd. and G-Com Ltd. Magticom has received a 900 megahertz Global System for Mobile Communications (GSM) license to provide GSM telephony services in Georgia. The company plans to invest up to $25 million in its prospective GSM network over the next four years. Georgia, with a population of 5.7 million, currently has no operating GSM system. MITI subsidiaries already hold ownership interests in several communications properties in Georgia in the cable television, paging, and telephony markets.

UK-Turkey JV to Transport Azeri Oil

· Caspian Transco, a joint venture between the British company Brown & Root and a Turkish firm has signed an agreement to ship oil from Kazakhstan across Azerbaijan and out to ports on the Black Sea, reported United Press International (UPI) last week, citing an official of the Azeri state oil company SOCAR. Caspian Transco signed the deal with SOCAR on Saturday after the test of a plan to transport oil across the Caspian by tanker and across Azerbaijan via pipeline and rail proved successful, said SOCAR international investments department chief Vitalik Beglyarbekov.

The agreement allows Kazakhstan and its joint-venture partner US Chevron to export oil produced at the Tengiz oilfield to world markets without relying on the Russian pipeline system. Under the deal, SOCAR is leasing surplus capacity of two pipelines to Caspian Transco, which is later to connect the lines to allow for the shipment of up to 1.2 million tons of oil annually through Azerbaijan and Georgia to the Black Sea port of Batumi, said Beglyarbekov.

SOCAR-Kawasaki Deal Signed

· Azeri state oil company SOCAR and Japan's Kawasaki Heavy Industries announced Thursday they will jointly build a pumping station to transport natural gas from the Bakhar field on the Caspian shelf, reported UPI. The Japanese government will provide a 30-year loan for the project, with repayments from Azerbaijan to begin in 10 years. The amount of the loan was not disclosed. Construction of the station will take 12-18 months, and is expected to increase gas production to five million cubic meters per day. The Bakhar field has estimated reserves of 2.2 million tons (15.4 million barrels) of oil, 640,000 tons of natural gas condensate, and 17.7 billion cubic meters of natural gas.

Correction: Friday's Daily Report incorrectly identified the Russia's Aga-Buryat, Koryak, and Khanty-Mansi areas as autonomous oblasts (region). They are autonomous okrugs (district).

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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