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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, November 13, 1996

Russian Federation


Peoples Trust in Yeltsin Down

· The Russian public's trust in President Boris YELTSIN has decreased drastically since the June presidential elections. Only 10 percent of Russians described YELTSIN as the politician they trusted most in a November 4 nationwide survey of 1,600 people, conducted by the All-Russia Public Opinion Research Center, reported the Associated Press (AP). A similar poll, conducted in June, found that 29 percent of respondents considered YELTSIN the most trustworthy politician in the country.

Aleksandr LEBED's trust rating also fell, from 29 percent in June to 24 percent in November, but he was at the top of this most recent poll. Communist leader Gennady ZYUGANOV came in second in the November poll with 14 percent, down from 21 percent in June. Overall, it appears that Russia's top politicians are less trusted than ever. However, YELTSIN has the excuse of having been out of the public eye for several months because of illness.

Lukashenko Angers State Duma Democrats

· Belarus President Aleksandr Lukashenko addressed the Russian State Duma today, receiving stormy applause from communist and nationalist deputies by calling for the closer integration of the two countries and criticizing NATO's planned eastward expansion. Although he did not meet the expectations of the Russian press that he would call for a confederation, LUKASHENKO did propose a joint session of the Russian and Belarussian parliaments in January to discuss further steps toward integration. LUKASHENKO and President Boris YELTSIN signed an agreement in April to create a community, but little progress toward integration has been made. LUKASHENKO also reiterated his intention to sus

pend the transfer of the remaining nuclear missiles inherited from the Soviet Union to Russia, unless NATO promises to provide guarantees that nuclear weapons will not be deployed in East European nations after they become members of the alliance.

Meanwhile, Yabloko party leader Grigory Yavlinsky and some 70 democratic deputies walked out at the beginning of the speech, charging LUKASHENKO with striving to establish a dictatorship in Belarus through a disputed November 24 referendum. YAVLINSKY called the Belarus president's speech a "political show and buffoonery," adding that Moscow should have told Lukashenko it did not support his actions, reported Itar-Tass. "In Belarus, journalists are beaten and deported, opposition demonstrations are dispersed, academicians and professors who stand for a democratic development of that republic are kept in custody," he told reporters. The president's address to the Duma "is not a way to real integration, but a political show aimed at supporting the image of Aleksandr Lukashenko," he said.


Ruble = 5,478/$1.00 (NY rate)

Ruble = 5,478/$1.00 (CB rate)

Ruble = 5,473|5,483/$1.00 (buy|sell rates)

Budget's Passage Chances Look Bleak

· Russian State Duma Budget Committee chairman Mikhail ZADORNOV said today that the 1997 draft budget will not be passed before the end of

Today's News Highlights


Privatization Forecast for 1997

Grain Forecast for 1997

Norilsk Sought by Tax Man

PlanEcon on Oil Industry

US-Russia Investment JV

European Republics

Moldova Pres. Elections Sunday

Belarus Food Prices Frozen

Transcaucasia & Central Asia

Azeri Oil Output Down




November 13, 1996

Intercon's Daily

the year, reported Russian television (RTV). He suggested that the quality of the current version of the draft budget, worked out by a government-parliament conciliation commission, was not likely to inspire deputies. According to Duma deputy Mikhail ROMANOV, the Duma is not satisfied with the government's position on increasing production. He said that deputies want the government to call for a 20 percent production increase next year. The Duma is expected to debate the draft budget next week.

Privatization Forecast for 1997

· Russian privatization officials are predicting that the 1997 federal budget will receive nearly 4.2 trillion rubles ($777 million) from the sale of state property, reported RIA Novosti. Target privatization revenues for the 1996 budget were originally 12 trillion rubles ($2.2 billion), but have been revised downwards to eight trillion rubles ($1.48 billion).

State Property Committee first deputy chairman Vasily SHUPYRO said that the bulk of 1997 revenues will come from the sale of stakes in telecommunications holding company Svyazinvest, oil pipeline company Transneft, and oil company Rosneft. In addition, blocks of shares in over 2,500 privatized enterprises and newly-founded joint stock companies sold by regional property funds next year are expected to bring in 548 billion rubles ($101 million). Other revenues will come from the sales of real estate and the transfer of federal property to regional authorities, he said.

Norilsk Threatened by Tax Officials

· Representatives of Russian metals group Norilsk Nikel agreed to meet this week with tax officials, who threatened to seize the company's assets to cover tax arrears, reported Reuters today. "They have not taken anything, just threatened to do so. But they could freeze property as well as metal," said Yuri OLEINIK, head of Norilsk's public relations in Moscow. He denied rumors that the government had seized thousands of tons of nickel. Kommersant-Daily reported recently that Norilsk owed about five trillion rubles to the federal budget.

Forecast for 1997 Grain Crop

· Russian Deputy Prime Minister Aleksandr Zaveryukha predicted today that Russia's grain harvest will total 71 million tons in 1997, up from 63

million tons this year, reported Itar-Tass from the World Food Summit in Rome.

ZAVERYUKHA, who leads the Russian delegation to the Summit told RIA Novosti that Russia will soon join the UN Food and Agricultural Organization (FAO). Membership in FAO, he said, will allow Russia to use its mechanism for the protection of domestic food producers.


PlanEcon on Russian Oil Industry

· Increasing export capacity is the key to the success of the Russian oil industry, said Matthew Sagers, director of energy resources at Washington, DC-based consulting firm PlanEcon, reported Dow Jones. Speaking at the annual meeting of the American Petroleum Institute on Tuesday, he also noted that Russian oil consumption has fallen since the breakup of the Soviet Union, making oil exports important for the sector's continuing recovery.

In other former Soviet republics, particularly Kazakhstan and Azerbaijan, new export routes are critical, as is foreign investment, said SAGERS. The lack of an export pipeline has been very harmful to Kazakhstan, making it dependent on Russia. However, he sees the proposed pipeline of the Caspian Sea Consortium (CPC) as one of the most promising of the many export pipeline plans currently under consideration. The CPC plans to build a pipeline from Kazakhstan's Tengiz oilfields to the Russian Black Sea port of Novorossiisk.

SAGERS pointed out that foreign investment is currently a marginal concern for Russia, where joint ventures with foreign firms represent only about six percent of Russian oil production, but he estimated that this share could increase to 25 percent if the current ventures are successful. He said that foreign companies should consider investing their equity in Russian oil companies, rather than joint ventures. He noted that US Atlantic Richfield Co's (ARCO) investment in Russian oil conglomerate Lukoil has doubled in value in roughly a year.

Ernst & Young Bids for Central Bank Audit

· International accounting firm Ernst & Young was the only foreign company to offer a bid to audit the Russian Central Bank in 1996, a source in the

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November 13, 1996

Intercon's Daily

State Duma told Prime-Tass on Tuesday. Russian bidders for the audit are Yunikon , Finexport, Arni, and Rufaudit. According to the source, a special Duma commission stopped accepting bids for the audit on Monday. This was the first year that Russian firms were invited to participate in the tender. In 1993-1994, the Central Bank was audited by Coopers & Lybrand and in 1995, by Deloitte & Touche, which is expected to report the results this month.

San Francisco Firms in Russia Securities

· Two San Francisco-based investment firms, Morgan Fuller Capital Group LLC and Intercapital Trust Ltd. have formed a joint venture company (Region-Morgan Fuller) with Region Investments, one of Russia's leading regional investment banking and brokerage firms, said press releases issued Tuesday. The new company will offer US investors direct access to Russian securities.

"Today only about 100 stocks are traded publicly on the Moscow Exchange, with only about 35 trading actively," said Alex Liverant, Intercapital Trust partner. "A mere handful of these are traded here as ADRs. But thousands of other promising securities, representing some of Russia's finest industrial enterprises, trade only domestically through companies like Region, and thus have been unavailable to US investors."

Located in Tyumen, western Siberia, Region Investments is a fast growing brokerage with 62 employees and over $40 million in trading volume. The company recently accumulated and distributed the second largest trade in the shares of Russian gas giant Gazprom. Because of its central location, Region has developed close working relationships with principal industries, high tech firms, and energy companies across Russia.

Investors seeking to invest in domestic Russian securities directly will make their transactions with Morgan Fuller with advice and direction from ITL/Region. Morgan Fuller will take the responsibility for opening duplicate accounts at Region in Tyumen. Securities will be bought and sold on local markets at local Russian prices. Securities will be held either in separate accounts with Region on behalf of the foreign investor or held in type E investment accounts at Russia's Inkombank.

European Republics

Moldovan Election Sunday

· Moldova, a nation of 4.3 million people, will hold its first ever multi-party presidential elections on Sunday. Incumbent President Mircea Snegur, Prime Minister Andrei SANGHELI, and parliamentary chairman Petru LUCINSCHI are leading a field of nine candidates vying in the poll. None of those running are expected to receive the majority of votes necessary to win in one round. A runoff is scheduled for December 1. SNEGUR, who ran unopposed in

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November 13, 1996

Intercon's Daily

December 1991, favors closer ties with neighboring Romania. He wants to broaden his largely ceremonial powers and create a presidential republic, ousting the prime minister and the ruling Agrarian Party. He is backed by the center-right Party of Revival and Harmony, the pro-Romanian Popular Front, and minor nationalist parties. SANGHELI, backed by the Agrarian Party, favors closer ties with Russia, on which the agricultural sector depends for energy supplies. LUCINSCHI calls himself a social democrat and is running as an independent. Several minor leftist parties have supported his candidacy.

Meanwhile, the campaign has been touched by scandal. The Moldovan parliament on Tuesday decided to open an investigation into the bugging of telephone conversations of SNEGUR's campaign manager, parliamentarian Nikolai ANDRONIK. Last week, Moldovan TV broadcast a conversation between ANDRONIK and Moldova's ambassador to Germany revealing the diplomat's involvement in the campaign, which is prohibited by law. However, phone tapping is also forbidden by the Moldovan constitution and the president has demanded that the head of the broadcasting agency be punished. Moldova's Prosecutor General Dmitri POSTOVAN told journalists on Monday that an investigation has been initiated.

Lukashenko Fixes Meat, Egg Prices

· Belarus President Aleksandr LUKASHENKO has announced on local television Monday that farmers will now need government permission to sell meat and eggs at free market prices, reported Reuters. He said the price of 10 eggs had been fixed at 12,000-16,000 Belarussian rubles, half the current market level. The move comes just before a November 24 referendum in which the President is seeking to broaden his authority, and could be interpreted as a populist appeal for votes. "Collective farms are waiting by not selling livestock. They say prices are low. Commercial firms are selling livestock abroad," LUKASHENKO said after a tour of meat shops, a meat processing plant, and a poultry farm.

Supplies of meat and eggs are becoming increasingly unreliable in Minsk. Head of the parliamentary agricultural committee Gennady USYUKEVICH criticized the move saying, "Agriculture now is in a worse state than it was under socialism. The state is simply forcing producers to sell goods at cheaper prices." LUKASHENKO's action contradicts demands by the International Monetary Fund (IMF), which has already suspended its loan program pending faster economic reform in the country.

Transcaucasia and Central Asia

Russia-Turkmen-Iran Oil Deal

· The foreign ministers of Russia, Turkmenistan, and Iran have signed a memorandum on cooperation to explore oil and gas deposits in the Caspian Sea and invited Azerbaijan and Kazakhstan to join them, reported Itar-Tass. "We plan to create a joint company to develop and produce hydrocarbons in the offshore areas of the three states," said Russian Foreign Minister Yevgeny Primakov.

Azeri Oil Output Down

· Azerbaijan's oil output is forecast at nine million tons this year 1996, down from 15 million tons in 1990, reported Tuesday's OMRI, citing Nezavisimaya Gazeta. The steady decline of oil production is the result of a lack of investment and the loss of Azerbaijan's traditional export markets, said the report. This year, the Azeri government negotiated several oil deals with foreign firms for the exploration and development of Caspian Sea deposits, but additional output from new projects won't come until at least next year.

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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