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 7, 1996

Russian Federation

Politics

Yeltsin Moves to Sanatorium

· Russian President Boris Yeltsin was released from Moscow's Central Clinic Hospital over the weekend and moved to the Barvikha sanitorium outside Moscow to continue preparing for his upcoming heart surgery, said the presidential press service today. YELTSIN, who had been at the hospital since September 13, will be able to do more work and be more physically active at Barvikha.

Sports Minister Fired on Corruption Charges

· Russian President Boris Yeltsin has dismissed his friend and tennis coach Shamil Tarpishchev from his two Kremlin posts, chairman of the State Committee on Sports and Tourism and chairman of the Presidential Coordinating Committee on Sports and Tourism, for being connected to a corruption scandal, Russian Public Television (ORT) reported on Saturday. In addition, ORT said that TARPISHCHEV would resign as Russia's representative on the International Olympic Committee because "scandals recently linked to his name may damage the international reputation of Russian sport." As sports minister, TARPISHCHEV oversaw the controversial National Sports Fund, which reportedly abused its tax privileges on imports of alcohol.

Former Sports Fund chairman Boris Fyodorov reiterated corruption charges against Tarpishchev on NTV independent television on Sunday. FYODOROV was dismissed from his post in May, after being detained for alleged drug possession, and in June he was attacked by unknown assailants and nearly killed. He later went into hiding abroad in fear for his life. On Sunday on the Itogi news show, he accused TARPISHCHEV and former presidential bodyguard Aleksandr KORZHAKOV of

involvement in the June attack, as well as of blackmail. FYODOROV said that KORZHAKOV and his deputy Colonel Valery STRELETSKY, who is now chairman of the Sports Fund, suggested that he had collected $200 million in illegal gains and demanded $40 million. Some believe that the money was to be used for YELTSIN's re-election campaign. "They told me: `You have stolen so much, now it's time to share.'" FYODOROV first aired these allegations soon after the attempt on his life. The General-Prosecutor's office is reportedly investigating the charges, but would not comment.

Comment: The departure of TARPISHCHEV marks the end of the time when YELTSIN's close confidantes, headed by KORZHAKOV, were ensconced in the Kremlin, enjoying great power and privilege, but away from public scrutiny and beyond reproach.

Lebed Faces NATO in Brussels

· On his first trip to the West, Russian Security Council secretary Aleksandr Lebed arrived at NATO headquarters in Brussels today for talks with NATO Secretary-General Javier Solana and the alliance's 16 ambassadors. LEBED was invited by SOLANA to discuss NATO's planned eastward expansion, which is vehemently opposed by Russia.

Speaking upon his arrival in Brussels, Lebed sounded a great deal more civil than in comments of recent weeks in Russia, including a reference to NATO officials as drunken hooligans. "This is (a matter of) our

Today's News Highlights

Russia

Regional Election Results

S&P Gives Russia Debt Rating

European Republics

Coca-Cola in Ukraine

Ukraine Roots Out Corruption

Transcaucasia & Central Asia

CIS Summit on Afghanistan

Georgia-EU Agreements

Azeri Parl. Ratifies ShakhDeniz

Azeri Swap Deal withTengiz

Politics-Economics-Business

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Monday

October 7, 1996

Intercon's Daily

common security. The future of not only Europe but of the whole world will depend on how we build the dialogue with NATO," Lebed told reporters.

"We must assess the situation from the perspective of interests of Russia and its security. Secondly, it would do to explain in more detail what Russia's current interests in Europe consist of. Thirdly, I am poised for a complex but civilized dialogue without unconscientious commentators, who assert that Lebed menaces NATO with nuclear missiles, that Russia is ready to occupy some countries in case of their slightest movement towards NATO," he was quoted by Itar-Tass as saying. "These are the worst scare stories of the Cold War, and I hope none of the sides will stoop to this sort of argument."

LEBED said that he would present Alliance officials with proposals for future Russia-NATO relations, but he gave no details about his ideas. In an article published in Monday's International Herald Tribune, SOLANA proposed that Russia and NATO station permanent liaison officers in their respective military commands to help build a closer relationship and prepare a new European security order.

Sunday's Regional Election Results

· Gubernatorial elections were held in four Russian regions on Sunday, with two incumbents winning re-election and two areas needing a run-off election.

Vologda Oblast governor Vyacheslav Pozgalyov won a second term in office with an overwhelming 80 percent of the vote, compared with only five percent garnered by his closest challenger, businessman

Mikhail Surov. Pozgalyov, who was appointed to the governor's office by President Boris YELTSIN in June 1996, had been heavily favored to win.

Kaliningrad Oblast incumbent Yuri Matochkin received 31.33 percent of the vote on Sunday to challenger Leonid Gorbenko's 22.29 percent, but the two men will face each other again in a run-off election, probably on October 20. Kaliningrad election rules require a candidate to receive over 50 percent of the vote to win. The other five candidates received a negligible amount of support.

Kirov Oblast was contested by four candidates—incumbent Vasily Desyatnikov, State Duma deputy Vladimir Sergeenkov, backed by the

leftist Popular Patriotic Bloc, district administrator Petr Polyantsev and the head of the regional economic association, Gennady Shtin, none of whom received the over 50 percent of the vote needed to win the election outright. SERGEENKOV, who received 40 percent of the vote, will face SHTIN, who got 31 percent, in a runoff election. DESYATNIKOV got only 18 percent of the vote.

In addition, Aleksandr Korsunov, the incumbent governor in Novgorod Oblast, located north of Moscow, easily won re-election, gaining more than 78 percent of the vote.

Hardline Communists in Turmoil

· A fight broke out at Saturday's meeting of the hard-line communist Workers' Russia party between supporters and opponents of party head Viktor Anpilov. The anti-Anpilov camp had demanded his expulsion from Workers' Russia. After the conflict erupted, reporters were asked to leave the hall. After his supporters walked out, his opponents elected a new leader, Vladimir Grigoryev, and a new executive committee. ANPILOV and Worker's Russia were left out of a new left-leaning coalition, the People's Patriotic Union, formed in August.

Economy

Ruble = 5,421/$1.00 (CB rate)

Ruble = 5,416|5,426/$1.00 (buy|sell rates)

Russia Gets S&P Debt Rating

· Standard and Poor's announced today it has assigned a double-B-minus rating to about $11 billion worth of dollar-denominated debt issued by the Russian Finance Ministry, reported Dow Jones. The rating covers five tranches of the three percent bonds, known as MinFins or Taiga bonds, due between May 14, 1999 and May 14, 2011.

According to Dow Jones, S&P said its rating reflected the following key factors: the Russian government's short economic management track record and, especially, the political and administrative difficulties it faces raising tax revenues; the fact that Russia's fiscal consolidation has relied heavily on sequestering cash expenditures, a costly practice and one difficult to sustain in the face of persistent public sector wage arrears, as well as unmet social spending needs; challenge of leadership succes

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sion in a country with a still-developing democratic culture and political institutions; a weak legal system, including tax enforcement that continues to foster widespread corruption, discourages foreign investment, and acts as a drag on overall economic activity.

The Russian Finance Ministry released a statement today saying that: "The Russian government considers its first sovereign debt rating as a step in the integration of our country into the international financial community, and is planning in the next few months to enter the international capital markets. The government also plans to receive a rating for its internal obligations denominated in rubles."

Russia sought an international credit ratings in preparation for the launch of a Eurobond offering, planned for later this year, said Dow Jones. It will be newly-independent Russia's first international bond issue. The ability to raise debt in international markets is essential for the government's plans to finance its budget deficit in a non-inflationary manner, since the availability of credit within the country is still limited, it said.

Tax Service Gets First Regional Computer

· Russia's Federal Tax Police today began using a computer databank covering the northern and northwestern regions of Russia, the first of eight similar regional systems which are expected to significantly improve tax collection, reported Itar-Tass. The new ISINPOL computer system was supplied and assembled by France's Bull company. The system will provide for better information exchange between Russian tax police officers, and keep account of violations, crimes and criminals, statistics and analysis of tax police results. The databank is located in St. Petersburg and connected to tax police units in the Republics of Karelia and Komi, the Arkhangelsk, Vologda, Kaliningrad, Leningrad, Murmansk, Pskov and Novgorod Oblasts, and the Yamal-Nenets Autonomous District. The next regional databank will be introduced in Moscow.

Pickering Optimistic as He Retires

· US Ambassador to Russia Thomas PICKERING, retiring this month, believes that a "full wave of investment" will enter Russia in the near future, reported the Associated Press (AP), citing Interfax. PICKERING has served as Ambassador for three-

and-a-half years. At a Friday press conference, the Ambassador said that his optimism rests on improving macroeconomic indicators, the suppression of inflation, the emergence of a constitutional order, the results of recent elections, and good prospects for the development of Russian-American relations. Through tax reforms, legislation on production-sharing agreements, and stimulation of mutual investments, Russia can improve the climate for investment, he said, and he believes the government is committed to doing these things.

PICKERING has been an active advocate for American investment: "I tell American investors: you can always find a reason not to invest in Russia...But the opportunities are there, they're very attractive, and your competition is certainly looking very carefully at investing in Russia, so you'd better too."

European Republics

Coke to Expand in Ukraine

· Coca-Cola Amatil Ukraine Ltd., is planning to invest another $250 million in Ukraine—completing a bottling plant near Kiev and building a new facility near Dnipropetrovsk, reported Reuters. The announcement was made on Thursday on Ukrainian state television after a meeting between Ukrainian President Leonid KUCHMA and company executives. Coca-Cola has already invested about $100 million in a bottling plant in the western city of Lviv. Representatives of the company are meeting in Kiev this week with representatives of US, Australian, and European financial institutions.

Ukraine Introduces Corruption Police

· In response to an alarming rise in corruption, Ukraine has created a special internal police force under the Interior Ministry to work specifically against the accepting of bribes by police officers, reported the Associated Press (AP). Interior Minister Yuri KRAVCHENKO told reporters Friday that 250 officers have been convicted of economic crimes so far this year, while hundreds of others were charged. However, just a few cases were reported in 1995. In 1996, over 9,000 Ukrainian officials at various levels have been convicted of economic crimes, most involving bribe-taking or forgery. The Interior Ministry cites a decline in salaries of state employees as the reason for the sharp increase in corruption.

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Transcaucasia and Central Asia

Russia/Central Asia Meet on Afghanistan

· Following an emergency summit in Almaty Friday, the leaders of Central Asia and Russia called today for a cease-fire in Afghanistan and pledged an "adequate response" if Taliban fighters seize control of northern regions and approach the borders of the Commonwealth of Independent States (CIS). In a joint statement Russian Prime Minister Viktor CHERNOMYRDIN and the presidents of Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan also urged the UN Security Council to convene immediately to seek a solution in Afghanistan. "The flames of war are drawing to the borders of CIS member countries, posing a direct threat to the national interests and security of those states and the commonwealth as a whole," said the statement, read by Kazakh President Nursultan Nazarbayev. No concrete plan of action was decided at the summit, but Nazarbayev stressed that the CIS would follow a policy of non-interference.

Georgia Signs Agreement with EU

· Georgia and the European Union (EU) signed an interim trade agreement in Tblisi Saturday to bolster economic ties, while a Partnership and Cooperation Agreement, signed in April, awaits ratification, reported Reuters. The EU has already signed similar interim agreements with Russia, Ukraine, Belarus, Moldova, Kazakhstan, and Kyrgyzstan.

Head of the EU's 15-member delegation Francois LAMOUREUX said his group also had talks with the government on an ECU two million ($2.5 million) assistance package designed to help Georgia prepare to join the WTO. "We want Georgia to become a member of the WTO. Membership in the WTO will make Georgia a worthy economic partner for the members of the European Union," said LAMOUREUX.

The EU delegation signed an agreement with Azerbaijan earlier in the week, but will not travel to Armenia. Head of the EU's Transcaucaus, Central

Asia department Fokion FOTIADIS said the delegation canceled that portion of their trip over "security concerns" in the wake of violence and political unrest after the recent presidential election.

Azeri-Tengiz Oil Trade Deal Signed

· A deal was signed in Baku Friday allowing the US-Kazakh Tengizchevroil joint venture to bypass the Russian pipeline system and export a shipment of oil to the West under a one-time barter deal. Russia has restricted the amount of oil that the venture can export through its pipelines. Tengizchevroil will ship 20,000 tons (140,000 barrels) of oil by tanker across the Caspian Sea to Azerbaijan, and the Azeri state oil company SOCAR will ship the same amount of its oil by train to the Georgian Black Sea port of Batumi for export to the West, reported United Press International (UPI). The deal was signed by SOCAR, Tengizchevroil, and Caspian Transcompany, a venture between Brown & Root and a Turkish oil transport firm, a SOCAR official told UPI.

Azeri Parliament Ratifies Shakhdeniz Deal

· On its third attempt, the parliament of Azerbaijan on Friday voted to ratify a $4 billion, 30-year contract on prospecting and developing the Shakhdeniz oil field, signed on June 4 by the Azeri state oil company SOCAR and an international consortium, composed of British Petroleum, Norway's Statoil, France's Elf Aquitaine, Turkish state oil company TPAO, Russia's Lukoil, and Iran's Oil Industries Engineering and Construction. BP and Statoil each have 25.5 percent stake in the consortium, while Elf Aquitaine, Lukoil, and OIEC each have a 10 percent stake, and TPAO has only nine percent.

The Shakhdeniz oilfield, located in the Azeri sector of the Caspian Sea, has estimated reserves of 500 billion cubic meters of gas, 190 million tons of oil, and 200 million tons of gas condensate. Under a new clause in the contract, if no reserves are found, Azerbaijan will receive a $37 million payment, modernized drills and $3.8 million in compensation.

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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