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 30, 1996

Russian Federation

Politics

Security Council Reshuffle Controversial

· Russian President Boris YELTSIN on Tuesday named businessman Boris Berezovsky and Col.-Gen. Leonid Mayorov as deputy secretaries of the Security Council under newly-appointed secretary Ivan RYBKIN. The two will replace Vladimir Denisov and Sergei Kharlamov, who were appointed under former secretary Aleksandr LEBED. Mayorov, who has been first deputy head of the CIS Military Cooperation Staff since April 1996, will be in charge of problems connected with defense, the military-industrial complex, and the Chechen peace talks.

Berezovsky's appointment is more controversial. He is president of Moscow automaker LogoVAZ and sits on the board of Russian Public Television (ORT), among other business interests, and is closely linked with presidential chief of staff Anatoly CHUBAIS and YELTSIN's presidential re-election campaign. BEREZOVSKY is expected to be involved in decisions involving Russia's economic security.

Seleznyev Calls for Chubais' Resignation

· Russian State Duma chairman Gennady SELEZNYEV today demanded the "immediate dismissal" of presidential chief of staff Anatoly Chubais and stated that he refuses take his seat on the newly-formed Consultative Council with CHUBAIS. SELEZNYEV protested the appointment of businessman Boris Berezovsky as deputy secretary of the Security Council describing it as "one of the most serious mistakes in the personnel policy" of the president. He charged that BEREZOVSKY used his position on ORT's board to conduct an "anti-Russian information coup," which in turn was sanctioned by CHUBAIS who was behind BEREZOVSKY's appointment. "Such an appointment cannot be indiffer

ently taken by those whose hearts ache for Russia", he told Itar-Tass today.

The Consultative Council was created last week by YELTSIN and includes the president, the prime minister, and the speakers of both houses of parliament. However, CHUBAIS is representing the president while he is undergoing surgery. The Council was due to hold its first meeting on Friday.

Prime Minister Viktor CHERNOMYRDIN was reportedly angry at SELEZYEV's stance, denouncing his refusal to sit on the Consultative Council as unethical and disruptive to the processes of the government and the unity of the country's leadership.

Yeltsin Surgery Next Week?

· Russian President Boris YELTSIN is likely to undergo triple or quadruple heart bypass surgery next week and will need 6-8 weeks to recover before he can return to the Kremlin full-time, according to US heart specialist Michael DeBakey. The US doctor said he will travel to Moscow this weekend to consult with Kremlin doctors about the operation, reported the Associated Press (AP). Interfax reported today that a doctors conference would probably be held at the beginning of next week to set a date for the surgery, which has been planned since September. Doctors first wanted to treat YELTSIN's severe anemia and a thyroid dysfunction, problems which now appear to have been "pretty well corrected," said DEBAKEY. Both DEBAKEY and Renat

Today's News Highlights

Russia

KamAZ to Pay Off Tax Debt

New Bills on Agri./Priv./Prod.-Sh

FedEx Upgrades Rus. Service

Moscow Gas Station Chain Sold

European Republics

Latvia Gets Bank of NY Loan

Mitsui & Ukraine Refinery

Transcaucasia & Central Asia

CIS Defense Ministers Meet

Habibi in the Caucasus

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Wednesday

October 30, 1996

Intercon's Daily

AKCHURIN, the Russian surgeon who will operate on YELTSIN, have said that the prognosis is good.

New President for Academy of Sciences

· Academician Yuri Osipov was elected President of the Russian Academy of Sciences for a second five-year term, receiving the support of 777 out of 1,025 scientists present at a general meeting of the Academy on Tuesday.

Economy

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

Ruble = 5,455/$1.00 (CB rate)

Ruble = 5,449|5,461/$1.00 (buy|sell rates)

CB Sees Slowdown of Capital Flight

· A stemming of the flow of foreign currency away from Russia over the next few years was predicted on Tuesday by a Central Bank official, who sees economic stabilization keeping the money at home. Viktor MELNIKOV, head of the Bank's hard currency control and supervision department, told reporters that: "The Central Bank's preventative measures allow us to control the most massive means of capital flight," according to Reuters. Since the beginning of reforms in 1992, aggregate capital flight is estimated at $60-80 billion. The main method of getting hard currency out of the country is through false import and export contracts.

MELNIKOV said that Russian banks had imported $21 billion in the first eight months of 1996, compared with $20.5 billion in 1995. He forecast that imports of dollars would total $31 billion this year.

KamAZ to Pay off Tax Debts

· One of four companies threatened with bankruptcy court by the Russian government for having an excessive tax debt has promised to pay up. Tatarstan-based automaker KamAZ has agreed to pay 50 billion rubles (about $9.2 million) to the state by October 31 and to renew regular payments of its taxes. The company's tax debt was previously reported at 85 billion rubles ($15.7 million). Bankruptcy proceedings have been started against the three other cited tax-dodgers—Moskvich, Krasnodar-nefteorgsintez, and Achinsky aluminum plant, according to Federal Bankruptcy Agency head Pyotr MOSTOVOI. He also said that the government had sent letters to seven other companies which paid

less than 20 percent of this year's taxes. Twelve more companies slated to have their books checked to determine the extent of their tax delinquency include oil companies Varyogonneftegaz, Noyabrskneftegaz, and Nizhnevartovskneftegaz, and automaker ZiL.

Agri./Priv./Prod.-Sharing Bills Ready

· The Russian parliament has drafted a law on permanent state subsidies for agriculture, a spokesman for the Federation Council Agricultural Policy Committee told Itar-Tass today. The draft law sees a "transition from the centralized sectoral scheme of state support to the agro-industrial complex to a scheme of territorial appropriations," which calls for creating federal and regional funds for agriculture.

The federal fund would accumulate land tax and lease revenues of cities and villages, taxes on agricultural land, customs duties on imported agricultural products, and excise duties on alcohol. These revenues are to go into direct financing of federal programs of subsidizing agricultural producers. The regional funds are to be formed from regional deductions to the federal budget in the value-added tax (VAT) on goods and services of farms and excise duties on alcohol, in addition to the budget's subsidies to agriculture of Russia's component republics. The committee says these sources of subsidies are expected to allow the self-financing of the agrarian sector.

According to the committee, the law would not increase budget expenditures but would rather ensure a fairer distribution of funds to economic sectors. The committee plans to recommend that the draft law be debated in the parliament simultaneously with the draft 1997 federal budget.

Russian State Duma Privatization Committee chairman Pavel Bunich said on Tuesday that his group has prepared a new bill which regulates the privatization of enterprises belonging both to the federal authorities and Russian regions, and which outlines general principles for privatizing municipal property, reported Itar-Tass. The bill has been forwarded to other Duma committees and to the government for approval, he said, predicting that the Duma will approve the first reading of the bill at the end of November. He estimated that approximately 55 percent of state-owned property, in terms of its cost, has

When you need to know it as it happens

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Wednesday

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Intercon's Daily

been privatized so far, and this figure is expected to grow to 70 percent within the next three years.

"Anybody who has money will be able to buy the shares of such enterprises. The interests of the shareholders will be protected by the Civil Code of the Russian Federation, the laws on property and on joint stock societies," said Bunich. He did not rule out the possibility of bankrupt enterprises being reprivatized. Following a Court ruling of insolvency, bankrupt enterprises will be auctioned off.

The Russian Fuel and Energy Ministry expects amendments needed to reconcile tax and customs legislation with Russia's oil production-sharing law will be passed this year. "I think that by the end of the year the State Duma will adopt amendments to tax and customs legislation and the laws will fully correspond with the production-sharing law," Deputy Fuel and Energy Minister Valery GARIPOV told Reuters. He said that his ministry, as well as the justice and natural resources ministries, had sent the necessary amendments to parliament and that hearings will be held in mid-November. GARIPOV said the changes were aimed at excluding value-added tax and lifting customs duties on imported equipment and amendments to the law on natural resources. The law on production-sharing was signed in January, but foreign investors immediately complained it did not meet their requirements.

Business

FedEx to Upgrade Russia Service

· US Federal Express Corp. announced on Tuesday that is has launched a new, Moscow-based international operation that will act as a gateway to Russia and most of the Commonwealth of Independent States (CIS), said a company press release. The service will directly link Russian businesses with the FedEx "World On Time" global express network. FedEx will be the only US express carrier to use a combination of its own aircraft and customs warehousing service. This will remove the express industry shipment weight restrictions, and FedEx will offer a 10:30am next business day express service from Moscow to North America and Western Europe.

"Russia's hard currency exports have risen by $20 billion or 30 percent since 1993, and Russia's GDP and merchandise exports are forecast to grow by

some 30 percent from now to the millennium. Russia has created an environment in which the demand for services that link its business community to other countries and regions is growing fast. Our objective is to meet that demand with a world class service, coupled with a newly revised, highly competitive pricing structure," said David J. Bronczek, Federal Express senior vice president.

Service from the US to Moscow will be two business days and one business day from Western Europe to Moscow. The five-night-per-week FedEx Russia service will be the first of its kind to operate from Vnukovo Airport near Moscow. The flights will be routed from the FedEx European hub in Paris.

British-Yaroslavl Road Joint Venture

· The British road construction firm Wimpey Asphalt International has signed an agreement with the government of Yaroslavl Oblast to establish a joint venture with $3 million in assets, reported Russian television. Wimpey has a 49 percent interest in the venture, which will repair and build new roads in the central Russian region.

Moscow's Largest Pvt. Gas Chain Sold

· Kolerov & Co., Moscow's largest network of private gas stations, was bought by a group comprised of a Swiss firm, a Serbian firm, and three Russian business groups, including the Moscow Writers Union, Kolerov & Co. announced Tuesday, reported RIA Novosti.

Owner Ilya KOLEROV said he sold the business under pressure from city authorities involving Kolerov's purchase of Arsi, another Moscow gas station company. The purchase contract was canceled by the Moscow magistrate after Kolerov had paid for Arsi. Subsequently, the office withdrew Kolerov's license to operate Arsi. Company manager Igor KOLEROV said last week that these actions resulted from his company's refusal to follow a municipal order to increase gas prices. He also said that city officials were angered when Kolerov did not give money to rebuild the church of Christ the Savior, which is patronized by the Moscow magistrate. In a statement released last week, KOLEROV said that he could not carry on in the gasoline business given, "the present circumstances where the city authorities illegally annul the licenses they issue and are trying to fabricate charges against (Kolerov & Co)."

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European Republics

Latvian Rail to Sign Bank of NY Loan

· The Bank of New York and Latvian railways will sign a $6.7 million loan today for the modernization of the railway's telecommunications network, reported Reuters. The credit will be guaranteed by the US Export-Import Bank and will be the first Eximbank guarantee for Latvia which does not require an additional guarantee from the Latvian government.

Mitsui and JGC to Revamp Refinery

· Leading Japanese trading house Mitsui & Co. Ltd. and engineering firm JGC Corp. have been awarded a 19.6 billion yen (about $184 million) contract to renovate the Ukrtatnafta oil refinery in Kremenchug, Ukraine, reported Reuters. The work is to include enhancing the gasoline yield of a fluid catalytic cracker from 800,000 tons to 1.3 million tons per year. Trade insurance would be supplied by Japan's Trade Ministry and the project financed through loans from Japan's Export-Import Bank.

Ukraine Sets Minimum Imported Car Prices

· The Ukrainian government on Tuesday adopted a resolution which sets coefficients for customs officials to determine the minimum price of imported cars, including second-hand vehicles, according to the government's press service. The minimum price of a new Mercedes-Benz model with an engine displacement of 3,000 cubic centimeters will be about $45,000, while new BMWs and Audis will cost some $30,000. The prices of new and old car tires are $30 and $15, respectively.

Transcaucasia and Central Asia

CIS Defense Ministers Meet

· The defense ministers from the Commonwealth of Independent State (CIS), with the exception of Moldova and Uzbekistan, met in Dushanbe Tuesday and agreed to fortify Tajikistan's border with Afghanistan. The ministers expressed concern over "the direct threat to the national interests and security of Central Asia, in particular because of the increase in fighting in Afghanistan," said Colonel-General Leonid Mayorov, acting chief of the CIS Military Cooperation Staff, according to Interfax.

The ministers also suggested extending the mandate of the Russian-led peacekeeping force in Tajikistan at the next summit of the CIS heads of state, scheduled for December. Today's Segodnya suggested that Russia's infantry division 202, which are peacekeepers stationed on the Tajik-Afghan border, could be given the status of a permanent Russian military base in Tajikistan. The ministers also discussed the progress of a plan to unify the air defense systems of the CIS countries.

Iran's Habibi in the Caucasus

· Azerbaijan and Iran signed an intergovernmental agreement on the mutual encouragement and protection of investments in Baku on Monday, reported Itar-Tass. Iranian First Vice-President Hassan Habibi is currently on a four-day official visit to Azerbaijan, aimed at strengthening and boosting ties between the two countries. HABIBI will next travel to Georgia for a three-day visit, reported the official Islamic Republic News Agency (IRNA).

New Kazakh Security Council Chief Named

· Kazakh President Nursultan Nazarbayev on Tuesday appointed Beksultan Sarsekov as secretary of the Security Council, replacing Baltash Tursumbayev who was transferred to another job, reported Itar-Tass. Sarsekov has served in leading posts in the interior ministry, as well as in the presidential staff and the government.

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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