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, November 12, 1996

Russian Federation

Politics

Yeltsin Being Spared the Bad News

· Chief Kremlin doctor Sergei MIRONOV said Monday that Russian President Boris YELTSIN is being shielded "from any unnecessary wave of negative information" in order to help smooth his recovery from heart surgery, reported Reuters. As MIRONOV also said that YELTSIN had been told about the bombing at a Moscow cemetery Sunday which killed 13 people, it is difficult to imagine what kind of bad news is being kept from the president. On Monday, senior presidential spokesman Sergei YASTRZHEMBSKY told reporters that YELTSIN would address the nation this week, but did not give an exact date or indicate the medium to be used for the message.

Most Group Tries to Buy Izvestia

· The Most Group, one of Russia's largest financial and media conglomerates, wants to add the influential daily newspaper Izvestia to its media empire. Most head Vladimir GUSINSKY approached Izvestia editor Igor GOLEMBIOVSKY last month about buying a major stake in the company, whose shares are controlled by the newspapers employees, reported the St. Petersburg Times. "We said that this does not interest us," said GOLEMBIOVSKY, who is also president of Izvestia's shareholders committee. Izvestia employees own a 30 percent controlling stake in the paper. Other major shareholders include Troika Dialog with 19 percent and Mezhdunarodny Promyslovy Bank with 15 percent. GOLEMBIOVSKY suggested that Most is seeking to gain editorial control over the paper. The Most Group already owns controlling stakes in NTV Independent Television, the weekly news magazine show Itogi, the daily Segodnya, Ekho Moskvy radio, and the weekly "Seven Days" TV magazine.

Economy

Ruble = 5,476/$1.00 (NY rate)

Ruble = 5,476/$1.00 (CB rate)

Ruble = 5,471|5,481/$1.00 (buy|sell rates)

Roskomdragmet Successor Being Formed

· The Russian government is now in the process of creating a new body, under the Finance Ministry, to take over several functions of the former State Committee on Precious Metals and Stones (Roskomdragmet), reported Itar-Tass on Sunday. The new body, which will be called the State Fund for Precious Metals and Stones (GosFund), is expected to be headed by former Roskomdragmet officials. According to Itar-Tass, Valentin Nikitin, chairman of the state quality control chamber, and two former deputy chairmen of Roskomdragmet, Yuri Kotlyar and Boris Pozdnyakov, are vying to become the head of GosFund.

Roskomdragmet was broken up by presidential decree in August and its responsibilities were divided between the Finance Ministry and a new Industry Ministry. Industry was put in charge of metals and gem production, while Finance will deal with domestic sales and exports.

NIKITIN told Itar-Tass that the liberalization of the Russian precious metals market "is inevitable." The government controls the production and export of gold, platinum and platinum group, and other metals.

Today's News Highlights

Russia

New Russian Oil Company

Undersea Gas Pipeline Plan

Russian Eurobonds to USA

Buryatzoloto Finds Financing

European Republics

More on Belarus Referendum

Ukraine Faces US Noise Regs.

Transcaucasia & Central Asia

Caspian Status Talks Continue

World Bank Loan for Kyrgyzstan

Politics-Economics-Business

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Tuesday

November 12, 1996

Intercon's Daily

Tuesday Tidbit

Deputy Industry Minister Grigory Napolov noted that the situation in the light and textile industry remains critical as production of some goods has dropped by 10 times from 1991. "We are losing our own market. Imported goods account for more than 50 percent of sales on our market," he said.

Undersea Gas Pipeline Route Proposed

· Russian gas monopoly Gazprom has decided to build a $1 billion export pipeline from its port of Tuapse across the Black Sea to Turkey, reported today's Journal of Commerce. The planned undersea pipeline would replace proposals for overland pipelines across the Caucasus to Turkey and across Ukraine, Romania, and Bulgaria, both politically-sensitive projects. The direct route from Russia to Turkey will allow Russia to fulfill a recent agreement to increase gas supplies to Turkey fivefold by 2010, Gazprom spokesman Sergei SMIRNOV told RFE/RL last week, said the Journal.

Business

Russian Eurobonds Come to America

· A third Russian foreign ministry delegation—the first two are in Europe and Asia—is traveling to the US to promote Russian Eurobonds, to be issued in late November. Presentations will take place in Los Angeles, Minneapolis, Boston, and Chicago, as well as in New York on November 20, where Russian Deputy Prime Minister Vladimir Potanin is expected to participate.

Inkombank to Issue ADRs

· Inkombank, one of Russia's largest private commercial banks, has received Russian Central Bank approval to issue American Depositary Receipts (ADRs) to foreign investors, reported today's Financial Times. Although some major Russian companies, including Lukoil and Gazprom, have issued ADRs, Inkombank would be the first bank to do so.

Most of the Russian companies that have issued ADRs have seen their share prices increase significantly as foreign investors are attracted by the easier and safer way to buy, said the Times. Inkombank plans to allow up to three percent of its shares to be traded in ADR form, and has already received approval from the US Securities and Exchange Commission (SEC).

Returning from a

tour of Japan, musicians of

the Shostakovich Philarmonic Society

had an unfortunate homecoming. An unfamiliar

man among the welcoming party at the airport

boarded one of the buses carrying the musicians into

the city. On the way to St. Petersburg, he pretended to

be unable to breath and asked the bus to pull over. Five armed thugs immediately boarded the bus and robbed

the musicians of the hard currency they had earned abroad. "I experienced a feeling of utmost humiliation

at what happened to us in our home city, so soon

after the Japanese public gave us an ovation

that lasted for half an hour," Philarmonic

Society director Anton GETMAN

told Itar-Tass.

New Russian Oil Company Formed

· A new Russian oil company, Volga-Kama Oil Co. (VKNK), has been registered in the city of Nizhny Novgorod, reported RIA Novosti on Monday. VKNK was founded by oil companies Lukoil and NORSI-oil (each having a 25 percent stake), banking groups Alfa-Bank (25 percent) and Uneximbank (15 percent), and investment company Rusintern (10 percent). The new company has authorized capital of 50 billion rubles ($9.2 million).

NORSI-oil president Vladimir STARIKOV said the new company would be the basis of a new financial-industrial group (FIG) of the same name. He also suggested that Tatarstan oil company Tatneft would also join the new corporation. NORSI-oil and Tatneft have been partners, since 1994, with NORSI refining up to 35 million barrels of Tatar crude oil per year. GALEYEV said that the proximity of Tatarstan and the Nizhny Novgorod region weighs in favor of participating in the new venture. However, Tatneft already plans to participate in two other FIGs, Mostatnafta and Ukrtatnafta, which are awaiting official registration. Under Russian law, a company may only work within one financial industrial group.

Russia Cuts VAT on Textiles

· A Russian government commission, headed by First Deputy Prime Minister Aleksei Bolshakov, decided to reduce the value-added tax (VAT) on textiles and light industry from 20 percent to five percent, reported RIA Novosti on Monday. First

When you need to know it as it happens

Politics-Economics-Business

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Tuesday

November 12, 1996

Intercon's Daily

High River Gets Financing for Gold Mine

· Canada's High River Gold Mines Ltd. said on Monday that the Russian joint stock company Buryatzoloto has arranged a project financing package for two producing gold projects in the southern Siberian Republic of Buryatia, reported Dow Jones. The financing is divided into three parts (1) private placement of common shares at $50 per share totaling $7.5 million to High River Gold Mines Ltd. and to discretionary clients of Mercury Asset Management and Robert Fleming and Co. Ltd., (2) a $17.5 million facility with loan and equity components from the European Bank for Reconstruction and Development (EBRD), (3) a working capital facility of $5 million arranged and structured by Gerald Metals Inc. at "rates quite favorable to the company." The company said that the total package provides $30 million of funding to Buryatzoloto.

It said Buryatzoloto has conservatively calculated the total gold reserve at about 6.2 million ounces. Approximately 43 percent of this reserve is proven/probable and about 90 percent occurs in the Zun Holba deposit. Annual production over the last five years has averaged about 55,000 ounces a year, but 1996 output is estimated to be about 77,000 ounces.

Stamford, CT-based Gerald Metals is a merchant and financier of precious and non-ferrous metals, with special focus on the mining industry. Gerald maintains offices throughout the world, including Russia, Kazakhstan and Uzbekistan. Gerald is currently working with entities in Russia and Kazakhstan in clarifying new regulations regarding the exportation of gold and the financing of gold projects.

High River acquired a 22.9 percent (30.5 percent voting) interest in Buryatzoloto in January 1996 at a share price of $25 per share. This further investment "essentially maintains our equity interest" in the

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November 18, 1996

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company, it said. Buryatzoloto has appointed two High River officers to the Board and to an Advisory Committee whose mandate is to provide management with technical support and advice in the areas of modern mine technology and financing, it said.

European Republics

Belarus Election Official Rejects Refer.

· Belarus Central Electoral Commission chairman Viktor GONCHAR said today he will refuse to validate the results of a referendum being pushed by President Aleksandr LUKASHENKO, reported RIA Novosti. Voting on the referendum began on Saturday, even though the official vote date is November 23, so that those people unable to go to the polls on that day would have a chance to vote. GONCHAR noted that copies of the constitutional amendments included in the referendum were not distributed before voting began. "The people don't know what they are casting their ballot for," said GONCHAR. "The essence of this procedure boils down to a very simple formula: Are you voting for the president or against him?"

LUKASHENKO, the parliament, and the constitutional court have been locked in a battle for months over proposed changes to the constitution, a battle which the president seems determined to win by any means. The referendum put forward to the country's 7.6 million electorate includes seven questions.

Four questions are LUKASHENKO's; they seek approval of his draft constitution, a ban on the death penalty, land reform, and changing the date of a national holiday. The parliament's three questions include another draft constitution, approval for local leaders to be elected rather than appointed by the president, and a state budget issue. Over 50 percent of voters must take part for the poll to be valid.

US Postpones Noise Reg. for Ukraine

· US authorities have agreed to postpone until April 1997 implementation of anti-noise legislation against Air Ukraine's Soviet-built Ilyushin-62s planned for January, reported Reuters. This is aimed at giving the state-owned airline time to lease quieter aircraft. In July, Air Ukraine announced it would lease Boeing-767s, but in September altered its plans to lease Airbus A-310 and A-320 instead.

When you need to know it as it happens

Politics-Economics-Business

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Tuesday

November 12, 1996

Intercon's Daily

Valentin TYSHCHENKO, a top aide to Air Ukraine's president, now says a final decision on which planes to lease for routes to New York, Chicago, Toronto, Miami, and Los Angeles will be made in early December. The leasing is to be concluded through a joint venture set up with US Crusader Holding WW, which has capital of $250 million. Air Ukraine currently operates more than 200 Soviet-built planes, including Tupolev-153 and -134, Antonov-24, and Yakovlev-40 and -42 aircraft.

Ukraine to Retain Majority Gold Share

· The Ukrainian government will take a 51 percent stake in Ukrzoloto, the state company set up to identify and explore gold deposits in the country, according to a government statement issued Monday. A draft decree on retaining government control of the country's evolving gold mining sector is being prepared. Ukraine has identified five gold deposits and is exploring three, mostly in the northwestern part of the country. The first gold production is expected in 1997 and Ukraine hopes to be producing 12-15 tons a year in 3-4 years.

Transcaucasia and Central Asia

Caspian Sea States Meet on Legal Status

· The foreign ministers of the five Caspian Sea littoral states (Russia, Iran, Turkmenistan, Kazakhstan, and Azerbaijan) today in Ashgabat signed an agreement on creating a working group to resolve a dispute over rights to develop subsoil resources. It is not clear how a "compromise" solution to the Sea's legal status, proposed by Russia, went over with the other countries. Russia offered to extend the size of exclusive economic zones allotted to each country from 12 miles to 40 miles. However, the new larger zone would still not encompass some offshore oil deposits already being developed by the Azerbaijan state oil company and the Azerbaijan International Operating Company (AIOC) consortium.

Kyrgyz Grain Harvest Exceeds Forecasts

· Kyrgyzstan has harvested 1.49 million tons of

grain this year, up from 980,000 tons in 1995 and exceeding forecasts of 1.3 million tons, reported Reuters. Kabylbek DZHUMALIYEV, head of agricultural reform in the presidential administration, told a press conference today that wheat accounted for 1.042 million tons of the total grain crop. The wheat harvest is more than enough to cover domestic demand of about 800,000 tons. Although the better-than-expected grain harvest is a major success, the country is still experiencing problems in the storage and milling of wheat, said DZHUMALIYEV.

World Bank Loan for Kyrgyzstan

· The World Bank will open a $15 million credit line for private enterprises in Kyrgyzstan in 1997, reported United Press International (UPI) on Monday. The assistance will be provided through a special fund rather than through local commercial banks, and 15 applications are already being considered, according to World Bank representative to Kyrgyzstan Mike Rantham.

As of November, the Kyrgyz State Property Committee had privatized 546 of 946 medium and large-scale enterprises put up for auction. It has also sold more than 50 percent of state-owned shares in another 200 firms. The country has pursued strict economic reforms and privatized thousands of small enterprises, but has received less than $60 million in direct foreign investment since gaining independence from the Soviet Union in late 1991.

Turkish Bank Opens in Kyrgyzstan

· DemirKyrgyz International Bank (DIB), which is 60 percent-owned by Demirbank of Turkey, will open soon in Kyrgyzstan, reported RFE/RL last week. The new bank will be the first foreign-owned bank to open in the country. Despite the Turkish company's large share in the bank, the European Bank for Reconstruction and Development (EBRD) has reportedly agreed to provide $300,000 for the bank and will extend a $2 million credit line for short- and medium-term financing in Kyrgyzstan's private sector when DIB begins operations.

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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