DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 908,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, November 22, 1996

Russian Federation

Politics

Yeltsin Out of Hospital, Meets Chubais

· Russian President Boris YELTSIN was released from Moscow's Central Clinical Hospital today, less than three weeks after undergoing quintuple bypass surgery. He will continue his convalescence at the Barvikha sanatorium outside Moscow. Presidential aides say they expect YELTSIN to return to work at the Kremlin before the end of the year.

Yeltsin met with his chief of staff Anatoly Chubais at Barvikha for nearly an hour to be briefed on progress in the settlement of the political crisis in Belarus and regional elections in Russia. Chubais told the president that former vice-president Aleksandr Rutskoi had requested a meeting with the president in light of his election as the governor of the Kursk Oblast. Once political partners, the two men have been foes since RUTSKOI joined the rebel Russian parliament in an attempt to take over power in October 1993. However, both have recently indicate a desire to reconcile. "Boris Yeltsin approved in principle the possibility of such a meeting," said the Kremlin press office.

Duma Wants Chubais & Ilyushin Suspended

· The Russian State Duma adopted a resolution today asking President Boris Yeltsin to temporarily suspend presidential chief of staff Anatoly Chubais and First Deputy Prime Minister Viktor Ilyushin, while an investigation is being conducted into a campaign financing scandal. Duma Security Committee Chairman Viktor Ilyukhin told deputies that his committee's examination of a tape of an alleged conversation between CHUBAIS and ILYUSHIN, leaked to the press earlier this month, suggests that the tape is authentic. However, he said that there were still some doubts that the third

person on the tape was presidential aide Sergei Krasavchenko, and the matter should be further investigated.

The taped conversation, a transcript of which was published on November 15, suggested that a cover-up was conducted following the detention last summer of two YELTSIN re-election campaign workers. Sergei Lisovsky and Arkady Yevstafiev were stopped by the Federal Security Service (FSB) on June 19 trying to leave the Government building with a box containing $538,000, but no documentation to identify the money. The case, which was being handled by Moscow Public Prosecutor's Office, was turned over to the Prosecutor-General's Office on Thursday. Prosecutor-General Yuri Skuratov has ordered one of his deputies to begin a criminal investigation against the two men.

The prosecutor said that Chubais, Ilyushin, Krasavchenko, former Presidential Security Guards (SBP) chief Aleksandr Korzhakov, and former SBP official Valery Streletsky will be questioned regarding the case. CHUBAIS, who has denied the authenticity of the tape, told Interfax that: "I am ready to answer all questions."

Prosecutor Investigates Korzhakov

· The Russian Prosecutor-General's Office said today it was launching a criminal case in connection with the elimination of key government documents by the Presidential Security Guards (SBP) under Ale

Today's News Highlights

Russia

Three Major Share Sales

EBRD Loans for Moscow Parking, Geobent Oil JV

European Republics

Compromise Reached in Belarus

Lithuania Gas to Sell Shares

Transcaucasia & Central Asia

Investment in Azerbaijan

CPC Agreement Nearly Ready?

Ex-Im Bank Guar. for Boeing

Politics-Economics-Business

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Ruble = 5,489|5,499/$1.00 (buy|sell rates)

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ksandr Korzhakov, reported Itar-Tass. A prosecutor's office spokesman said it had been confirmed that classified documents which could contain information on possible threats to the president had disappeared. He added that the files went missing after Korzhakov's dismissal in June. The spokesman said the files could have inflicted "considerable damage" and the criminal case involves charges of abuse of office, which carries a maximum sentence of five years in jail. Korzhakov is registered as a candidate in State Duma by-elections in the Tula Oblast, giving him immunity from prosecution until elections are over.

Gubernatorial Election in Kurgan Sunday

· The incumbent administration head of Russia's Kurgan Oblast is expected to be ousted by the Communist-backed opposition candidate in Sunday's gubernatorial election. Governor Anatoly SOBOLEV, appointed by President Boris YELTSIN in August 1995, has central government support for his candidacy. He served as first deputy chairman of the Kurgan executive committee and first deputy Governor between 1988 and 1995. The Communist candidate is regional legislature chairman Oleg BOGOMOLOV. In 1993, BOGOMOLOV won a seat in the Federation Council, where he is currently chairman of the Committee on CIS Affairs. The third main candidate is Anatoly KOLTASHEV, the director of a joint stock company.

Kurgan, a region of about 1.16 million people, is located in southwestern Siberia on the border with

Kazakhstan. Residents strongly favored Communist candidate Gennady ZYUGANOV in both rounds of presidential elections last summer. Recent opinion polls show BOGOMOLOV leading the field with the support of 22 percent of Kurgan residents. KOLTASHEV follows with 14 percent, while only about 13 percent said they would vote for SOBOLEV.

Economy

Three Major Share Sales Planned

· Russia's Menatep Bank plans to auction off a 33.3 percent stake in Russian oil company Yukos on December 23 in what will be the first sale of a stake obtained through a shares-for-loans deal, reported Thursday's OMRI, citing Kommersant-Daily. In December 1995, ZAO Laguna, acting on behalf of Menatep, Tokobank, and Stolichny Bank, won a shares-for-loans auction for a 45 percent stake in Yukos by offering a $159 million credit. The stake was then transferred to Menatep management. In September, the stake held by Menatep was diluted to 33.3 percent as a result of an additional share issue, sold to help pay off Yukos' wage and tax debts. Menatep's sale of the stake has been approved by the Finance Ministry, State Property Committee, Federal Property Fund, and Yukos, said the report.

Russia's Federal Securities Corp. (FFK) announced today the sale of 3.66 billion shares, or 8.5 percent of the capital, of electricity monopoly Unified Energy Systems (UES) at a cash auction, reported Reuters. Bids will be accepted between November 22 and December 23. The results of the auction will be announced by January 17, 1997. The minimum price for the shares is 500 rubles (about $0.09) each.

The FFK also announced today it will sell 2.54 million shares, or 2.14 percent of the capital, of oil company NK Slavneft at a minimum price of 5,000 rubles a share, said Reuters. Bids will be accepted between November 27 and December 27 and results will be announced by January 29, 1997. Slavneft, whose shares are not actively traded, is a Russian-Belarussian joint venture.

Sakhalin-Japan Gas Pipeline Planned

· A group of Japanese companies is studying the possibility of building a natural gas pipeline to link Japan with Russia's Sakhalin Island, reported

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November 22, 1996

Intercon's Daily

Thursday's Journal of Commerce. The 2,700-km pipeline, estimated to cost 450-500 billion yen (about $4-4.5 billion), would connect Sakhalin to a site near Tokyo. A Japan Petroleum Exploration Co. spokesman said that a "rough study" had been carried out with four Japanese steel companies. The pipeline, which would take about 10 years to complete, would be cheaper than transporting liquid natural gas by ship, he said. Several Western and Japanese companies are involved in oil and gas development projects which aim to tap deposits off Sakhalin.

EBRD Loan for Moscow Parking

· The European Bank for Reconstruction and Development (EBRD) has granted a five-year, $135 million loan to finance municipal programs in the city of Moscow, reported RIA Novosti today, citing Moscow officials. The funds will be used for city construction projects, such as under and above ground parking garages, including the one on Manezh square.

Business

Geoilbent Oil JV Gets EBRD Loan

· US Benton Oil and Gas Company announced on Thursday that its Russian joint venture, Geoilbent Ltd., has completed a $55 million loan with the European Bank for Reconstruction and Development (EBRD), said a Benton press release. This facility will ensure the continued commercial development of the North Gubkinskoye and Prisklonovoye oil and gas fields in western Siberia. "With total estimated recoverable reserves of 300 million barrels of crude oil, the development of these fields represents an additional step towards arresting the decline of Russia's oil production," said EBRD Vice President Ron Freeman.

Geoilbent was established in 1991 by two Russian companies, Purneftegaz and Purneftegazgeologia, which each own 33 percent, and Benton Oil and Gas Company, a US publicly-traded company based in California, which owns 34 percent.

country. Under the agreement, the parliament pledged to halt impeachment proceedings against the president and the president agreed that the results of the Sunday's constitutional referendum would be non-binding. The agreement, to be endorsed today by the full parliament, stipulates that the final version of the Constitution will be worked out by a Constitutional Assembly, made up of 50 deputies of the parliament and 50 representatives of the president, to be convened within 20 days. The assembly will be chaired by LUKASHENKO and the new Constitution will be drawn up on the basis of either the president's or the parliament's draft versions. The Constitutional Assembly is expected to adopt the new constitution within three months.

Estonia's Reform Party Pulls Out

· The Estonian government collapsed Thursday when the Reform Party voted to pull out of an alliance with the Coalition Party. The action follows the resignation of six Reform ministers in protest of a cooperation agreement signed by Prime Minister Tiit VAHI and the leading opposition Center party. The Center party has ties to Estonia's ethnic Russian population and Reform fears the new cooperation will move the government closer to Moscow. VAHI must now decide whether to fill the vacant posts with Center members or look to his own party.

Lithuanian Gas to Offer Shares

· Lithuanian state gas company Lietuvos Dujos plans to offer 16 percent of its shares in a closed tender early next year, reported today's Financial Times. The company operates Lithuania's pipeline network and services gas consumers. General Director Kestutis SUMACHERIS said that Lietuvos Dujos wants Russian gas monopoly Gazprom to buy part of the equity. The company owes Gazprom $31 million for 1996 supplies and expects the sale to be accompanied by a long-term gas contract with Gazprom. A stake in Lietuvos Dujos would give Gazprom a toehold in Lithuania and secure supplies for the Russia exclave Kaliningrad.

Gazprom has pursued acquisitions in other countries partially to alleviate chronic non-payment problems in the former Soviet Union. Gazprom owns parts of gas companies and networks in Estonia, Latvia, Belarus, and Moldova. "Gazprom has moved into owning existing companies because it gives them

European Republics

Compromise Reached in Belarus

· After 10 hours of Russian-brokered talks, Belarus President Aleksandr LUKASHENKO and parliamentary speaker Semyon SHARETSKY signed an agreement, defusing the recent power struggle in the

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access to the downstream margins that it felt it had not been getting before." FT quoted analyst Stephen O'SULLIVAN as saying. Lithuanian law forbids debt for equity exchanges.

Germany's Ruhrgas and Gaz de France have also expressed an interest in some of the shares. A western partner would help alleviate possible opposition to Russian ownership from nationalist politicians who recently won control of parliament. The Lithuanian government currently owns 90 percent of the company, with the remaining 10 percent owned by employees. The 66 million shares are expected to be offered at a price of one litas, giving the company a capitalization of 399 million litas ($99.75 million). Lietuvos Dujos had sales last year of $160 million.

Transcaucasia and Central Asia

Foreign Investment in Azerbaijan

· Azeri Trade Minister GULIYEV estimated that contracts signed between Azerbaijan and international oil corporations will attract $14 billion in investments to the economy within the next 15 years, reported Itar-Tass. "In 1994, the value of foreign investments amounted to $22 million, but in the first nine months of this year, it grew to $240 million," Guliyev told the Caspian Oil and Gas conference in London. He said the Azeri government had succeeded in achieving macroeconomic stability and drawing out of the financial crisis in the past two years. "My country's foreign trade turnover doubled this year in comparison with the preceding year. In particular, we raised the level of export of petroleum products to two million tons in 1996," he said.

CPC Agreement Ready for Signing?

· US Chevron announced this week that negotiations on the restructuring of the Caspian Pipeline Consortium (CPC) were completed and a new shareholder agreement would be signed on December 6 in Moscow, reported Lloyd's List this week. Under the new agreement, the Russian, Kazakh, and Omani governments will hold a 50 percent stake in the

pipeline project, while nine oil companies, including Chevron and Mobil, will hold the other 50 percent. The pipeline will carry oil from the Tengiz oilfields, being developed by Chevron, Mobil, and the Kazakh government, to the Russian Black Sea port of Novorossiisk. Construction is slated to begin in 1997, and be completed in 1999.

However, statements this week by Mobil and Russian oil pipeline company Transneft suggest that Chevron may be overly optimistic about the progress of the CPC. Carl BURNETT, president of Mobil Corp. unit Mobil Oil Kazakhstan Inc., told Reuters today that: "I would not anticipate to see an exchange of shares, or actual acquisition of shares, on the sixth of December, even if there is a signing of a shareholders' agreement."

One of the major stumbling blocks to the agreement mentioned by BURNETT is a demand by Transneft for an equity stake in the consortium. A Transneft official said on Tuesday that his company was lobbying the Russian Oil and Gas Ministry to give it an equity stake. Transneft has good leverage in that it will operate the completed pipeline, as well as help set and collect transit fees. The CPC project has already been bogged down for years due to political differences and financing difficulties, but efforts to put it back on track appear far from over.

Ex-Im Bank Guarantees Uzbek Aircraft

· The US Export-Import Bank has guaranteed a $171 million Chase Manhattan Bank loan for the $190 million purchase of two Boeing 767-300ER aircraft and related items by Uzbekistan, said an Ex-Im Bank press release. This is the first financing by an official export credit agency of an aircraft purchase in the former Soviet Union, and Ex-Im Bank's largest transaction in Uzbekistan to date. The transaction is a breakthrough by Seattle-based Boeing into the Central Asian market. The aircraft are scheduled for delivery later this month and in March 1997, and will be used on Uzbekistan Airways' longest international routes.

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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