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 19, 1996

Russian Federation

Politics

Who's Running Russian Foreign Policy?

· Lately there seems to be some question as to who is making foreign policy in Russia. Since he replaced Aleksandr LEBED as Security Council secretary, Ivan RYBKIN has made several pronouncements on Russian relations with NATO that are at variance with the official Kremlin position presented by the Foreign Ministry. In addition, newly-appointed Council deputy secretary Boris BEREZOVSKY has lately been traveling about the CIS—he visited Almaty, Baku, Tblisi, and Yerevan last week—in an apparent diplomacy effort.

Twice in the past two weeks, RYBKIN has suggested that Russia join NATO's political wing, prompting a public rebuke by Foreign Minister Yevgeny PRIMAKOV. Taking time between foreign trips, PRIMAKOV repudiated RYBKIN's statements, saying that "Moscow, like before, is against NATO expansion," that nobody in NATO is waiting for Russia, and that Russian foreign policy is formulated by the Foreign Ministry, not the Security Council, reported Saturday's Segodnya.

Lebed Conducts First US Interview

· Former Russian Security Council secretary and presidential candidate Aleksandr LEBED was surprisingly humble and market-oriented in his first interview since arriving in America. LEBED, who rapidly changed from general to politician to bureaucrat, spent his time in the Kremlin pushing to increase his power and authority. Despite brokering a peace agreement in Chechnya, he managed to alienate many in the government and parliament. His calls for the ailing President YELTSIN to step down and a public battle with Interior Minister Anatoly KULIKOV eventually led to his ouster in mid-Octo

ber. He has been relatively quiet since then, apparently planning his political comeback.

Speaking in New York to Pete DU PONT, editor of IntellectualCapital.com, LEBED discussed the current situation in Russia and his future plans, including his intention to run for the Russian presidency in the year 2000. "I have certain—not that much—certain political experience, and opportunities to learn a lot in the coming four years. I will learn, and I hopefully can go on to the presidency," said the former army general.

Commenting on his plans for the Russian economy if he becomes president, LEBED stressed that Russia's market transition should be careful and gradual. "There should be both government and private medical care facilities, welfare, and social benefits, and things like that. There is a lot for us to learn from the United States."

Asked whether foreign investment is welcome in Russia, LEBED insisted that it is, but lamented that Russia is currently not attractive to foreign capital. "Is it profitable for capital to go to Russia? Yes. Is it secure and safe? No. ... So it is my intent to create such conditions, first of all, for direct private investment." He also said that: "My experts are currently working on restoration of the former system of providing the tariff incentives for the Western company who would be bringing technology and equipment to Russia. The conditions must be created where the inves

Today's News Highlights

Russia

Republicans Warn Yeltsin

EBRD Loan for Rus. Market

Far East Bank Goes Under

Korean Investment Fund

Sakhalin Energy Gives Contract

Transcaucasia & Central Asia

Kyrgyz President on Corruption

Kyrgyz Economy Recovering

Mitsui Wins Uzbek Contract

More Kazakh Govt. Reshuffling

Politics-Economics-Business

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Tuesday

November 19, 1996

Intercon's Daily

Tuesday Tidbit

the first American victim in the wave of mafia-related assassinations. "We urge you, as president, to do everything within your power to see to it that the maximum necessary resources and commitment are given to solving the crime." The FBI is reportedly assisting Russian authorities in the TATUM murder investigation.

The letter also warned that the "atmosphere of unrestrained crime" in Russia is undermining the willingness of American businesses to increase trade and invest in the country. In addition, Congress' future decisions about aid to Russia "will undoubtedly be shaped by the degree of progress that Russia makes in addressing the crime and corruption that, for now, are going unpunished," said the letter.

Economy

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

Ruble = 5,487/$1.00 (CB rate)

Ruble = 5,482|5,492/$1.00 (buy|sell rates)

EBRD Loan for Russian Supermarket

· The European Bank for Reconstruction and Development (EBRD) has granted a $60 million loan to a Moscow supermarket chain, reported Reuters today, citing a Bank statement. The EBRD extended $42 million and a syndicate of European commercial banks loaned an additional $17.5 million to Perekrestok, part of the Alfa Consortium of companies. Perekrestok, which operates Western-style supermarkets geared toward lower and middle class shoppers in Moscow suburbs, plans to expand its chain to 11 stores from five. Alfa Consortium is one of the largest financial-industrial groups in Russia, comprising the Alfa Eko trading group, Alfa Bank, and Alfa Capital investment fund.

Far Eastern Bank Goes Under

· Two top executives of the Nizhne-Amursky commercial bank (Nakbank), located in the city of Komsomolsk in far eastern Khabarovsk Krai, were detained on Monday for alleged embezzlement, reported Itar-Tass. Bank board chairman Sergei Ishutin and his deputy Sergei Shpatserman are accused of misappropriating 120 billion rubles under forged bills of exchange, according to local deputy prosecutor Valeri Kozlov.

Russia's most popular

daily Moskovsky Komsomolets has

come up with a new way to gauge the

appeal of the country's leaders. The paper is

offering $545 to the woman who writes the best

love letter to a politician. "When I see you, so calm

and stocky with a glint of cheerful shrewdness in your eyes, I think that one standing behind you would feel as

if they were behind a stone wall," wrote Irina RODIONOV

to Prime Minister Viktor CHERNOMYRDIN. MK believes that these feelings are a positive sign for the country.

"If the country's leaders may arouse such emotions

even with one person, it means things are not that

hopeless here," it said. The paper said it will

periodically publish contest entries,

noting that a "little touch of

eroticism isn't forbidden."

tors have significant incentives to invest capital to create jobs, and get certain benefits and privileges in order to do that."

LEBED was positive about Russia's future relationship with the US: "I think there is much more that joins us than separates us."

This is only LEBED's second trip abroad; the first was to Brussels in early October to meet NATO officials in his capacity as Security Council chief. He was invited to the US by the Council on Foreign Relations and the Nixon Center for Peace and Freedom. He spoke at the New York-based Council on Monday night, and is due to address a closed joint meeting of both institutes in Washington on Wednesday, according to RFE/RL. LEBED is also expected to meet with senior US government officials and congressional leaders, while in DC.

Republicans Upset over Tatum Murder

· US House of Representatives speaker Newt GINGRICH and other congressional Republican leaders sent a letter to Russian President Boris YELTSIN on Monday requesting information on the investigation into US businessman Paul TATUM's murder, reported the Associated Press (AP). TATUM was gunned down in central Moscow on November 3 in an apparent contract killing connected to a dispute over a Moscow hotel. The legislators expressed shock at TATUM's killing, noting that he was

When you need to know it as it happens

Politics-Economics-Business

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Tuesday

November 19, 1996

Intercon's Daily

Nakbank was on the list of 100 major Russian banks only two years ago. A broad advertising campaign brought in over 80,000 depositors and 55 billion rubles. However, a risky credit policy led to insolvency. The bank stopped paying depositors in January and owes its clients over 485 billion rubles.

Court Orders Berezovsky Sold

· A Russian civil court has ordered the assets of Berezovsky gold mine in the Urals to be sold off, reported Reuters. The prosecutor's office wants Mikrodin trading house, 78 percent owner of the mine, to repay with interest a $3.5 million credit the government had granted for the mine's development. Mikrodin is part of the Interros financial industrial group, which is closely associated with Uneximbank. Uralelektromed copper plant is reportedly planning to buy some of the Berezovsky assets. A private investor has already purchased a part of the mine for 2.4 billion rubles. The court initiated bankruptcy proceedings against the mine in September. The mine once produced some two tons of gold a year, but output fell to a 30 kg per month in 1996.

Business

New Korean Investment Fund for Russia

· Korean Investment Trust Co Ltd. said today that it has signed an agreement with Hong Kong-based Regent Pacific Group to set up a $150 million fund for investment in Russian and east European government bonds, reported Reuters. The Regent KITC Russian Debt Fund will invest about 90 percent of the fund in Russian bonds and the remainder in east European bonds, it said. The fund is expected to be formally launched this month.

Sakhalin Energy Awards Contract

· US-led consortium Sakhalin Energy Investment Co Ltd. has awarded a $35 million contract to Russia's Amur Shipbuilding Plant for construction of a platform in 1998 for the first phase of development of the Piltun-Astokhskoye oilfield off Sakhalin Island in the Russian Far East, said a USX-Marathon Group press release. The platform will initially serve as a support base for an existing mobile drilling unit, but will function as a drilling platform in 1999 when production begins. If Sakhalin Energy stays on schedule, it will be the first to produce significant amounts of oil off Sakhalin.

Sakhalin Energy President Frank DUFFIELD said the company's production sharing contract depends on the Russian government's keeping its promise to pass adequate oil and gas laws. Sakhalin Energy was established by Marathon Sakhalin Ltd. (30 percent ownership), McDermott Sakhalin Inc. (20 percent), Mitsui Sakhalin Development Co. Ltd. (20 percent), Shell Sakhalin Holdings B.V. (20 percent), and Diamond Gas Sakhalin B.V. (10 percent), a subsidiary of Mitsubishi Corp. Marathon is a part of the USXMarathon Group, a unit of USX Corp.

Transcaucasia and Central Asia

Kyrgyz President to Root out Corruption

· Kyrgyz President Askar Akayev today vowed to reduce the size of the state bureaucracy by 30-35 percent in an effort to stem corruption, save budget resources, and improve economic reforms, reported United Press International (UPI). In his annual speech to the country's legislature, Akayev called on parliament to decrease "the swollen parliamentary apparatus by a minimum of 20 to 30 percent."

The "massive and heavily corrupt apparatus of bureaucrats has slowed the pace of market reforms and discredited the state's policy of economic transformation," he said. The president also told parliament that limited resources would force a radical decrease in budget outlays, saying state spending must be pushed down below 20 percent of gross domestic product.

Upcoming Events

Gateway to Russia/CIS

Trade & Investment Forum 1996

December 8-10, 1996

Fontainebleau Hilton Hotel

Miami Beach, Florida

Organized by: Council for Trade and Economic

Cooperation, CIS-USA (Moscow and New York)

and GBC Associates (Miami)

Providing a unique opportunity for US and

Latin American companies to meet over

200 Russian/CIS Senior Business Executives

Information: Victoria Usherenko

Tel: 305-530-2200; Fax: 305-539-5111

When you need to know it as it happens

Politics-Economics-Business

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Tuesday

November 19, 1996

Intercon's Daily

Kyrgyzstan Economy Recovering

· In his annual address to parliament today, Kyrgyz President Askar Akayev gave an upbeat assessment of the country's economic prospects. "The macroeconomic and financial stability, achieved in Kyrgyzstan in 1996, paves the way to real economic growth next year," Itar-Tass quoted him as saying. This year, the government succeeded in reversing the production decline and reducing the budget deficit and the inflation rate, he said.

Over the first ten months of 1996, the gross domestic product (GDP) increased by 7.3 percent, compared with the same period in 1995, AKAYEV noted. Industrial production grew by 11 percent, and inflation has totaled 21 percent since the beginning of the year, against 32 percent last year.

The Economics Ministry's reform plan covering 1996-2005 calls for annual GDP growth of at least seven percent and the doubling of real incomes. He said that the main priority of economic policy in 1997 is to strengthen foreign economic ties. He called for increased government assistance to the country's leading export industries and a greater focus on trade, particularly with CIS countries.

Imperial to Renovate Turkmen Wells

· Turkey's Imperial Group will rehabilitate 30 oil wells in Turkmenistan, and has plans to improve another 500, reported Reuters, citing the official Turkmen-Press news agency. Imperial head Murat TOPAL said that the group will renovate 30 wells in the Gotur-Depe and Gun-Dag fields in the west of the country. He added that the company has plans to work on 500 more wells in cooperation with Turkmen Balkannebit, but gave no details on costs.

Output from Turkmen wells has fallen from 54 million tons in 1991 to 3.5 million tons in 1995. President Saparmurat NIYAZOV said that 1996 output stands at 3.2 million tons (64,000 barrels per day) so far, below the targeted five million tons (100,000 bpd). Earlier this month, US Mobil Corp. and Britain's

Monument Oil and Gas secured a deal to rehabilitate 2,000 wells in the country's western Balkan region.

Kazakh Deputy Premier Dismissed

· Kazakh President Nursultan Nazarbayev on Friday ordered the dismissal of Nikolai Makievski from his post as deputy prime minister and chairman of the Committee for the Movement of the Capital, reported Xinhua. However, he will retain the post of chairman of the State Committee for Emergency Situations. MAKIEVSKI was appointed to all three posts last January. Changes of top level officials have been very frequent recently in Kazakhstan, with dismissal of four deputy prime ministers and three ministers.

Mitsui Wins Uzbek Contract

· Japan's Mitsui & Co. has won a contract to expand a desulfurization plant at a state-run oil refinery in Uzbekistan, reported today's Journal of Commerce citing a Mitsui press release. Under the 19 billion yen ($170 million) agreement with Uzbekneftegaz. Mitsui will with work with subcontractor Toyo Engineering Corp. to provide desulfurization and other equipment to an oil refinery in the Fergana region, and help expand the desulfurization plant.

Updates

Chechnya: Moscow and Grozny are close to signing a peace treaty. A draft agreement was completed by Russian Security Council secretary Ivan Rybkin and Chechen rebel leader Zelimkhan Yandarbiyev over the weekend and has been forwarded to the two sides' governments for final approval. The treaty is expected to be signed soon in Grozny by Russian Prime Minister Viktor Chernomyrdin and Chechen Premier Aslan Maskhadov. The accord is based on the August 31 peace agreement signed in Khasavyurt and is to be used as groundwork for Moscow-Chechnya relations in the period before new presidential and parliamentary elections in Chechnya, set for January 27. Both sides appear optimistic about the agreement.

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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