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

Friday, November 15, 1996

to register to compete in the February 9, 1997 by-election for a State Duma seat for Tula Oblast. Registration as a parliamentary candidate gives KORZHAKOV, who has frequently claimed that CHUBAIS was about to have him arrested, immunity from arrest and prosecution. If he wins the election in Tula, his immunity will be extended.

KRASAVCHENKO has denied publicly that it was his voice on the tape, but he did say it sounded like CHUBAIS and ILYUSHIN, said Intercon sources

Campaign Against Chubais Goes Abroad

· The smear campaign against controversial Russian presidential chief-of-staff Anatoly CHUBAIS has apparently grown to include suspect foreign publications. Germany's FOKUS weekly, which is considered a tabloid, recently suggested that, in 1994, CHUBAIS helped US special services to expose Aldritch AMES, reported Nezavisimaya Gazeta on Thursday. The Russian newspaper labeled this story "preposterous material" and inferred that the information had been deliberately circulated by someone in the Russian special services.

Several Regional Elections On Sunday

· Several Russian regions will choose new leaders on Sunday. Incumbent governors are expected to prevail in Kamchatka Oblast and the Komi-Permyak autonomous district, while communist candidates are predicted to win in Altai and Stavropol Krais. The other races are believed too close to call.

Russian Federation

Politics

Leaked Tape of Chubais Fuels Scandal

· A new scandal was whipped up in Moscow today as at least three major Russian newspapers published transcripts of an alleged conversation that suggests misconduct and manipulation by now presidential chief of staff Anatoly CHUBAIS during the summer presidential elections. Nezavisimaya Gazeta, Komsomolskaya Pravda, and Moskovsky Komsomolets all said they had received a tape of a conversation between CHUBAIS and top presidential aides Viktor ILYUSHIN and Sergei KRASAVCHENKO from June 22. NG suggested that the tape was made secretly by one of the country's special services and leaked by former Presidential Security Guards chief Aleksandr KORZHAKOV.

The conversation between YELTSIN's main re-election campaign managers occurred three days after an incident in which two campaign aides carrying a large sum of money were detained and questioned by KORZHAKOV's service. The incident led to the ouster of KORZHAKOV, as well as Federal Security Service (FSB) head Mikhail BARSUKOV and First Deputy Prime Minister Oleg SOSKOVETS.

The tape captures the men discussing the incident and deciding that it should not be investigated until after the second round of presidential elections on July 3. The transcript recounts a discussion between ILYUSHIN and Prosecutor General Yuri SKURATOV (after CHUBAIS instructs ILYUSHIN to make the call), during which he asked SKURATOV to pass the documents on the case to President YELTSIN before taking any action on it.

The leaking of this tape comes only a few days after KORZHAKOV submitted his nomination signatures

Today's News Highlights

Russia

New CEC Chairman Elected

Ruble Chart

1996 Air Crashes Kill 204

Diamond Firm Problems Cont.

Major Telecom Merger Planned

Nike to Sponsor Russian Soccer

European Republics

UEC on Canada Stock Xchange

Qualcomm to Invest in Ukraine

Lukashenko Fires Election Head

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November 15, 1996

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Ruble = 5,482/$1.00 (NY rate)

Ruble = 5,484/$1.00 (CB rate)

Ruble = 5,479|5,489/$1.00 (buy|sell rates)

appointed by President Boris YELTSIN in November 1991; leading opposition candidate Yuri YEVDOKIMOV, the president of the oblast Union of Industrialists and Entrepreneurs, supported by Aleksandr LEBED's Truth and Honor movement; Vyacheslav KIRICHENKO, a commercial bank president; Mikhail ZUB, a joint stock company general director; and Vasily KALAIDA, chairman of a permanent commission of the oblast Duma. Murmansk, a region of some one million people, voted for YELTSIN in both rounds of presidential elections.

Stavropol Krai: A runoff election will be held in the southern Stavropol region with incumbent Governor Pyotr MARCHENKO facing State Duma deputy Aleksandr CHERNOGOROV, who is supported by the Communists. In the first round of voting, CHERNOGOROV won 47 percent of the vote to MARCHENKO's 38 percent.

New Central Electoral Commission Chairman

· The Russian Central Election Commission on Thursday unanimously elected Aleksandr Ivanchenko as its Chairman, replacing Nikolai Ryabov who was appointed Ambassador to the Czech Republic, reported Itar-Tass. Ivanchenko has served as deputy chairman of the 15-member Commission since September 1993.

Economy

Air Accidents Kill 204 This Year

· A total of 204 people were killed in 11 air crashes in Russia over the first 10 months of 1996, compared to only 69 deaths in nine crashes in the same period of 1995, reported Xinhua, citing the Russian Federal Aviation Service (FAS). FAS attributed the accidents to "the human factor," saying that errors by flight crews, air traffic controllers, and technicians accounted for 66 percent of the accidents, while mechanical failures during flight made up for 18 percent.

On Thursday, an Anpilov-2 passenger plane crashed on take-off near the northern Russian city of Syktyvkar, killing 13 people, reported the Associated Press (AP). The sole survivor of the crash, one of the two pilots, is in the hospital in critical condition.

Diamond Firm Problems Discussed

· The president of Russia's Republic of Sakha (Yakutia) Mikhail NIKOLAYEV met with Prime Minis

Jun Jul Aug Sep Oct Nov

Altai Krai: Incumbent Governor Lev KORSHUNOV is expected to lose his position as head of Altai Krai to challenger Aleksandr SURIKOV, the local legislative chairman, who is supported by the communists. During the summer presidential elections, the territory favored Communist Gennady ZYUGANOV strongly over President Boris YELTSIN. In addition, the Krai has lately been experiencing power cuts and other problems associated with funding shortages. Located in southwestern Siberia on the Kazakh border, Altai has a population of about 2.7 million.

Kamchatka Oblast: The two main challengers in the Kamchatka poll are incumbent Vladimimr BIRYUKOV, appointed by President Boris YELTSIN in November 1991, and Sergei KHARLASHENKOV, the chairman of the regional branch of Grigory YAVLINSKY's Yabloko Party. The remote Kamchatka peninsula, located in the far east between the Sea of Okhotsk and the Bering Sea, has only about 420,000 people.

Komi-Permyak & Ust-Orda Buryat Autonomous Okrugs: Incumbents Nikolai PLOUYANOV and Aleksei BATAGAEV of the Komi-Permyak district (located within Perm Oblast) and Ust-Orda Buryat district (located within Irkutsk Oblast), respectively, will attempt to retain their seats on Sunday.

Murmansk Oblast: Voters in the far northern Murmansk Oblast will choose between five gubernatorial candidates: incumbent Yevgeny KOMAROV,

When you need to know it as it happens

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ter Viktor CHERNOMYRDIN on Thursday to discuss the tax evasion charges against diamond company Almazy Rossii-Sakha, reported RIA Novosti. Sakha vice-president Vyacheslav SHTYROV told a press conference that the company had paid all its federal taxes and had channeled its profits into attracting investment.

The Russian Prosecutor General's office said Thursday that legal proceedings had been started against the company, reported Russian television (RTV).

Itar-Tass reported today that the Russian General Prosecutor's Office has turned over to the State Tax Police the evidence against Almazy Rossii-Sakha. The company allegedly concealed over 46 billion rubles in taxes, and engaged in illegal foreign currency transactions.

Business

Russia Plans Huge Telecom Merger, Sale

· Russian privatization officials have developed a new ambitious plan to sell off portions of the country's two major long distance telecommunications firms and raise $1 billion for the state budget. State Property Committee chairman Alfred KOKH outlined on Thursday a proposal to merge primary state telephone company Rostelekom with the country's second carrier Svyazinvest, reported Interfax. Following the merger, a "significant stake" in the new company will be sold off, he told a Cabinet meeting. The new company is expected to be worth more than $4 billion.

The government currently owns 51 percent of Rostelekom's voting shares and 100 percent of Svyazinvest. In July 1995, the government announced its intention to tender a 49 percent stake in Svyazinvest at cash and investment auctions. In late 1995, the government tried to sell 25 percent of Svyazinvest to a strategic foreign investor. On December 1, STET won a tender for the stake and was due to sign a contract of purchase until December 22, when a conflict arose and the Russian government announced the sale was off.

Rostelekom, the successor to the Soviet enterprise Intertelekom, is Russia's leading longdistance and international phone service provider, controlling about 80 percent of the country's telephone lines.

Svyazinvest holds a controlling interest in 85 local telephone companies throughout Russia.

The merger will effectively create a new telephone monopoly which is expected to increase the firms' attractiveness to foreign strategic investors, according to today's Financial Times. The scheme was worked out in conjunction with western investment banks, led by N.M. Rothschild, said the paper. However, it faces strong opposition from the World Bank, which is financing the western advisors working on Russian telecoms privatization. The Bank feels the merger will prevent the growth of small private companies, such as St. Petersburg Long Distance. "This deal puts a very big question mark over the government's commitment to privatization and the encouragement of efficiency and competition," World Bank chief economist Vladimir KONOVALOV is quoted by FT as saying.

Russian Soccer Sign Deal w/Nike

· US sportswear producer Nike and the Russian Soccer Union (RSU) on Thursday signed a four-year sponsoring contract to begin January 1, 1997, reported Itar-Tass. Nike International, Ltd. vice-president Anders Hansen told reporters that it is the firm's biggest contract this year.

RSU president Vyacheslav Koloskov stressed that the contract includes assistance to all ten Russian national teams, from men's and women's nationals to the junior team, as well as to six clubs. "The agreement provides, apart from full equipment for our players, for cash injections," noted Koloskov. "We agreed not to make public the total sum of the noted contract but it is higher than in our previous contract with the Reebok firm."

European Republics

Ukraine Co. on Canadian Stock Exchange

· The Ukraine Enterprise Corporation announced this week that its shares will be listed and traded publicly on the Alberta Stock Exchange, beginning today, said a company press release. Ukraine Enterprise Corp. (UEC) successfully completed its Initial Public Offering on November 7, 1996, raising $8.59 million from the sale of 2,454,161 Common Shares in the company. The investment firms of Brawley Cathers Ltd., Pacific International Securities Inc.,

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and Allied Corporate Services Inc. acted as financial agents for the IPO. The proceeds from the offering will be invested primarily in a major coal recovery project in eastern Ukraine.

UEC, with its executive office in Toronto and its principal operating office in Kiev, acts as an advisor to potentially high-return enterprises in Ukraine, sourcing funds for them and investing its own funds in the enterprises. The company's initial investment is in the Ecovuhillia Coal recovery company (Coalco), which will extract, prepare and sell coal through the reprocessing of waste from Ukrainian coal mines.

The coal industry is one of the largest and most important industries in Ukraine, however, due to the inefficiency of current extraction and enrichment processes, mounds of rock waste have accumulated over the years which contain large amounts of useable anthracite. With its investment, UEC will introduce technologies to Coalco that will allow the company to recover this valuable resource.

UEC has already signed conditional investment agreements with a plastics manufacturer, a financial institution, a canning plant, a food distribution company, and a confectioner, and other investment opportunities are currently being evaluated.

Qualcomm to Invest in Ukraine

· San Diego-based Qualcomm Inc. plans to invest $10-$20 million to produce cellular telephones at a microelectronics facility in Ukraine, reported Reuters, citing Qualcomm CEO Irwin JACOBS. The investment will be made through a joint venture with Telesystemy Ukrainy, in which Qualcomm holds a 49 percent interest. Qualcomm, aims to produce 250,000 cellular telephones each year, with production to begin June 1, 1997. According to JACOBS, this will be the first attempt to bring local wireless communications to Ukraine, where only eight million out of 52 million people have telephone service. Qualcomm is prepared to increase its investment to $2 billion if the market for cellular service takes off.

Service will initially be deployed in the Kiev, Dnipropetrovsk, Odessa, Lviv, and Ternopil regions. Qualcomm also plans to provide ground equipment in Ukraine for its Globalstar satellite in 1998-1999.

JACOBS says he is confident the joint venture will receive frequencies to operate its phones. Intercon reported November 11 that Motorola made a $500 million investment in Ukraine contingent upon promises from the government that the company would receive the licenses it needs. The government in September failed to deliver frequencies and suddenly raised tariffs and changed licensing requirements for cellular operators.

QUALCOMM develops, manufactures, markets, licenses and operates advanced communications systems and products based on its proprietary digital wireless technologies around the world.

Lukashenko Fires Election Official

· Belarus President Aleksandr Lukashenko dismissed Central Electoral Commission chief Viktor Gonchar Thursday for his refusal to sign Sunday's referendum results, claiming that the vote was invalid, reported Xinhua, citing Belarussian TV. The nationwide referendum, which included controversial question on constitutional amendments, is scheduled for November 24, but voting began on Saturday.

Speaking to parliament this week, Gonchar accused referendum organizers of violating the law both during the preparation and the initial phase of the poll. He said he would not validate the result.

Upon hearing about his dismissal today, GONCHAR accused the president of breaking the law and vowed not to leave his post, reported Reuters. However, LUKASHENKO sent police and OMON troops into the electoral commission today to prevent GONCHAR from entering his office. A Belarus parliamentary deputy told Reuters that police had thrown GONCHAR and three parliamentary deputies out of the commission "by force."

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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