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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

Tuesday, October 29, 1996

Spiegel. The main "revelation" in this latest interview is that Kremlin doctors informed KORZHAKOV as early as May 20 that YELTSIN's heart condition had worsened and he could only work a few hours a day, according to an advance release of the magazine, obtained by Reuters. KORZHAKOV contended that he never made the information public because he was thwarted by YELTSIN's daughter Tatyana DYACHENKO. "At that time my influence on the president was already reduced," he said.

Senior presidential press secretary Sergei YASTRZHEMSKY has clarified the status of KORZHAKOV, in light of the order issued by YELTSIN on Sunday, saying that "it does not entail his automatic dismissal and stripping of general's rank," but rather "starts the procedure for KORZHAKOV's retirement," reported RIA Novosti. However, if YELTSIN's order was an attempt to silence KORZHAKOV, it has clearly not succeeded and perhaps other, harsher actions will follow.

One thing that seems clear is that KORZHAKOV does not enjoy much support among the Russian people, despite his recent alliance with the popular ex-general Aleksandr LEBED. Today's Kommersant-Daily published the results of a poll by the Public Opinion foundation that questioned 1500 people in October on their view of KORZHAKOV. According to the results, only 3-4 percent of the respondents said that they trust Korzhakov (not more than those who trust the Chechen separatists). A total of 21 percent

Russian Federation

Politics

Chernomyrdin Cultivates His Image

· Russian Prime Minister Viktor Chernomyrdin appeared on Russian television Monday night, informally dressed and discussing his personal life and his family, in an apparent attempt to prepare the Russian people for his takeover of power during President Boris YELTSIN's upcoming heart operation. Russian independent television NTV's "The Unknown CHERNOMYRDIN" featured the premier for a half an hour playing the accordion, riding a jet-ski, and relaxing at his dacha with his family, while he discussed his hobbies, his favorite authors, and his views on life and politics. His wife talked about him in his younger days as he bounced a grandchild on his knee in the dacha kitchen.

The former Gazprom chairman was appointed Prime Minister in 1992 and is generally considered a competent, if colorless, bureaucrat. However, perhaps as early as next week, he will take the place of the president, including control of the "nuclear button," for an unspecified period while YELTSIN undergoes surgery. Should the president die during surgery or not fully recover, CHERNOMYRDIN will govern the country for three months until new elections are held. Moreover, the premier can be expected to be a major contender in such elections.

Korzhakov Strikes Back at Yeltsin

· Following Sunday's announcement that President Boris YELTSIN has signed an order relieving former presidential guards chief Aleksandr Korzhakov of his military duties, the Russian press was unable to locate him for comment. Nezavisimaya Gazeta was told by his press service that he was away on a business trip. It turns out that he is in Germany and has granted an interview to Der

Today's News Highlights

Russia

Trade Turnover Forecast

CB Moves to Set Up Gold Market

Total Chairman on Russia

Lufthansa Plans Upgrades

European Republics

Ericsson in Ukraine

New Ukraine Navy Commander

Transcaucasia & Central Asia

GM Opens Uzbek Dealership

Uzbek Bans Foreign Currency

Politics-Economics-Business

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Tuesday

October 29, 1996

Intercon's Daily

Tuesday Tidbit

Trade Turnover Forecast at $140 Billion

· Russian Trade Minister Oleg DAVYDOV told the World Economic Forum in Delhi that Russia's foreign trade turnover will reach $140 billion in 1996, with a $30 billion surplus, reported RIA Novosti. He predicted that exports will total $85 billion and imports will amount to $55 billion this year. He also forecast that foreign investment in Russia will exceed $3.5 billion in 1996.

CB Moves to Set up Gold Market

· The Russian Central Bank said on Monday that it had approved a series of measures aimed at encouraging domestic commercial banks to finance gold mining and to create a domestic gold market, said a Bank press release, cited by Reuters. The new rules allow banks to trade gold in the domestic market in a limited way through what it called special "precious metals accounts," and to make limited, gold-backed loans.

The Bank also said Russia is planning to pass laws creating a gold futures market. Interfax reported that about 100 Russian banks have licenses to work with gold and eight can sell gold abroad. Russia produced 132 tons of gold in 1995, but only five tons were financed by domestic commercial banks.

The head of the Russian gold mining enterprises' association Viktor TARAKANOVSKY told Itar-Tass on Friday that Russian gold output for the first nine months of 1996 was 80 tons, down 10 tons from the same period last year. TARAKANOVSKY warned that the crisis situation in the gold-mining sector will be aggravated if the government decided to deny funds to gold prospectors in next year's budget. The State Duma Budget and Finance Committee is discussing a proposal to exclude from the 1997 draft budget an allocation of two trillion rubles for advances on gold mining. "Dropping this article from the federal budget may be an end to Russia's gold mining industry," said TARAKANOVSKY.

He also noted the Central Bank's proposal that commercial banks finance gold mining, but said that these banks are unable to cover the two trillion rubles needed by the mining sector. Some 600 gold mining enterprises are operating in Russia, employing some 350,000 people, and producing about half of Russia's gold output.

Friday's edition of

Komsomolskaya Pravda published

a list of famous people that it said were the

heroes of the week. The list starts with a quote

from Prime Minister Viktor CHERNOMYRDIN's speech at the council of ministers' meeting. Taking the finance minister to task for his less than

energetic tax collection, CHERNOMYRDIN said:

"You must dig, you must drill. Do all of you have hernias?" The newspaper commented that the

premier is possibly unaware that it is

hemorrhoids that usually develops

during their processes of digging

and drilling.

of those polled think of Korzhakov as a master of intrigue and seven percent consider him to be a bribe-taker. After he announced his plans to run for a State Duma seat in the Tula district, seven percent of the respondents changed their attitude toward him for the worse; four percent, for the better; and 55 percent of those polled have remained indifferent to him. The Lebed-Korzhakov alliance is disliked by 15 percent of those polled, while seven percent of the respondents approved of this step by Lebed.

Stalemate in Aga Buryat Election

· Neither of the two contenders for the post of governor managed to win regional elections in the Aga Buryat autonomous okrug (district) on Sunday, reported Itar-Tass. Voter turnout was 58 percent. Incumbent Bolot Ayushev received 49 percent of the vote and the head of administration in one of the area's regions, Yuri Dondokov, got 48 percent. Under the local legislation, a candidate must obtain 50 percent plus one vote to be considered the winner. However, under the same legislation, neither of the two candidates is eligible to participate in the runoff, resulting in a ridiculous situation. The local population hopes that the new district legislative assembly, also elected on Sunday, will change the local election law.

Economy

Ruble = 5,454/$1.00 (NY rate)

Ruble = 5,453/$1.00 (CB rate)

Ruble = 5,447|5,459/$1.00 (buy|sell rates)

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	Tuesday		October 29, 1996
	Intercon's Daily
	Business Total Chairman on Russian Oil Deals · The chairman and chief executive of French oil company Total Thierry DESMAREST said Monday that his company will not make any major investment in Russia without a long-term transportation tariff agreement and closure of loopholes in the 1995 production-sharing law, reported Dow Jones. Speaking at the Oil & Money conference in London, he added that if movement is not forthcoming on these two issues in the near future, Total might consider investing in projects in Russia that left it with a modest financial exposure. Russia Co. Wins Suit Against Pepsico · A US District Court Judge in Seattle has issued a permanent injunction against PepsiCo, ordering it to cease "imitating, copying, infringing, or using" the "Kristall" vodka trademark, said a press release from Frank Pesce Group, Ltd. of Boca Raton which represents the trademark in the US. In August, following a four-week trial, a federal court jury found PepsiCo Inc. guilty of infringing on the vodka trademark. Frank Pesce has exclusive rights to import Kristall from the Moscow Distillery Kristall in Russia. The jury also found that PepsiCo had violated the Moscow Distillery Kristall's trademark "willfully." US District Court Judge William Dwyer has left open the questions of PepsiCo being required to pay in excess of $1 million in attorney fees. Pesce said he is still awaiting that decision, as well as a decision on his motion for lifting a temporary injunction issued by Federal Court in Palm Beach County prior to the Seattle decision. That injunction has kept Pesce's Kristall off the market, despite the Seattle ruling. The decision was a landmark because it was the first time that a Russian company has brought a lawsuit against a major American corporation in a US Federal court and won, PESCE said in the press release. Lufthansa to Upgrade Russia Flights · Germany's Lufthansa announced on Monday that it will upgrade business-class passenger services on flights to some destinations in Russia, beginning on November 1, reported Reuters. New features will include special check-in desks at airports, the ability to bring two pieces of carry-on luggage into the cabin, and new leather seats. The	changes will affect flights to Moscow, St. Petersburg, Nizhny Novgorod, and Samara in Russia, and Minsk, Belarus. Lufthansa currently serves 13 CIS cites. ACM Increases Russian Debt Investment · New York-based Alliance Capital Management LP announced on Friday that the Boards of Directors of four Alliance-managed investment funds have approved an increase in the percentage of the funds' assets that may be invested in US Dollar-denominated Russian sovereign debt obligations, said an Alliance press release. ACM Managed Dollar Income Fund Inc., Alliance World Dollar Government Fund Inc., Alliance World Dollar Government Fund II, and Alliance Global Dollar Government Fund each invest principally in this type of debt in emerging market countries. As a result of the change, each of the funds may now invest up to 25 percent of its total assets in US Dollar-denominated Russian sovereign debt obligations, up from a cap of five or 10 percent of total assets.
		European Republics Ericsson Gets Ukraine Cellular Order · Sweden's LM Ericsson Telefon announced on Monday that it has been awarded a major order for a fixed D-AMPS/AMPS cellular communications network by Ukraine's Digital Cellular Communications joint venture, said a company press release. The order, valued at $30 million, is the largest order ever for any digital wireless system in Ukraine. The order covers installation of a fixed cellular communications network in the Ukrainian cities of Kiev, Donetsk, Dnipropetrovsk, Kharkov, Odessa, and on the Crimean Peninsula. This fixed cellular network will use the same equipment as other wireless networks, a switch, and RBS 884 base stations. Digital Cellular, headquartered in Donetsk, is one of the largest cellular operators in Ukraine. Ukraine to Close Another Chernobyl Reactor · Ukraine announced on Monday that it will permanently shut down one of two remaining active reactors at the Chernobyl nuclear power plant at the end of November, reported Interfax. Ukrainian Environment and Nuclear Safety Minister Yuri Kostenko told reporters that Chernobyl's reactor No. 3 would be taken off-line on November 30. Reactor No. 4 has been covered by a concrete sarcophagus since April 1986 when it exploded


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Tuesday

October 29, 1996

Intercon's Daily

causing the world's worst nuclear disaster. The plant's second reactor has been closed down, but the first reactor is still operational.

The Group of Seven industrialized nations has promised substantial aid to Ukraine to completely close the plant by the year 2000, but no final agreement on the shutdown has been signed as the two sides continue to wrangle over the price of the deal.

New Navy Commander Named in Ukraine

· Ukrainian President Leonid KUCHMA has appointed Mikhail YEZHEL as the new commander of the country's Black Sea Fleet, as well as making him deputy defense minister, said local media. Last week, Navy Commander Vladimir Bezkorovainy tendered his resignation, along with two other high-ranking Ukrainian naval officers—First Deputy Commander and Chief of Staff Nikolai Kostrov and Deputy Commander Aleksei Ryzhenko. The resignations are apparently linked to the ongoing negotiations with Russia on the division of the Black Sea Fleet with some analysts seeing BEZKOROVAINY's departure as a nod to the Russian side. Russian and Ukrainian officials are expected to sign a final agreement on the Fleet next month.

Transcaucasia and Central Asia

GM Opens Dealership in Tashkent

· General Motors Corp. announced on Monday that it had officially opened the first authorized GM dealership in Uzbekistan, said a GM press release. "The Khamkor Limited automobile showroom and service center in Tashkent meets GM international standards, offering quality service and parts as well as a range of GM vehicles," said Greg DeYonker, executive vice president, General Motors Overseas Distribution Corp. At the opening ceremony attended by senior Uzbek government officials, the US ambassador to Uzbekistan and international government representatives, DeYonker said the facility was a major step in developing the region's automotive industry.

GM is expanding its activities throughout the former Soviet Union, selling trucks, vans and cars under the Chevrolet, Cadillac, Opel, and Saab brands.

Uzbekistan Bans Foreign Currency

· Uzbekistan's President Islam KARIMOV has signed a decree strictly forbidding the use of foreign currency in the country, which makes the Uzbek som the only legal currency, reported Monday's Journal of Commerce. The decree places strict controls on the import and export of foreign currency by both residents and nonresidents of Uzbekistan. It follows recent measures to tighten currency exchange dealings and the signing of a currency and export control agreement with Russia.

Kazakh Deputy Premier Dismissed

· Kazakh President Nursultan NAZARBAYEV on Monday signed a decree relieving Garry SHTOIK of his duties as deputy prime minister and transferring him to another, unidentified position, reported Itar-Tass. SHTOIK has been replaced by Dyusembai DUSEINOV, a former first deputy minister of industry, deputy minister of industry and trade, director of the Yermak ferro-alloys plant, and president of the Kazkhrom company.

Updates

Chechnya: Russian Prime Minister Viktor Chernomyrdin and Security Council secretary Ivan Rybkin on Monday supported plans to restore railway communications and regular air service in Chechnya, provided "the Chechen opposition guarantees the safety of cargoes," reported Itar-Tass. These guarantees were received during the talks between Rybkin and Chechen rebels in Nazran, Ingushetia, according to the secretary. Chernomyrdin and Rybkin discussed the possibility of resuming regular passenger air service on the routes Moscow-Grozny, Grozny-Baku, and Grozny-Ankara, he said. The restoration of air and rail traffic through the separatist republic is an important step towards normalizing the economic and political situation there.

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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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 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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