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

Wednesday, November 27, 1996

Russian Federation


Chernomyrdin's Trip to France Fruitful

· Russian Prime Minister Viktor Chernomyrdin wrapped up his visit to France today, telling reporters that he felt that relations between the two countries had reached "a turning point." During the visit, agreements were signed on the redemption of Tsarist-era bonds held by the French, Russia's debt to the Paris Club group of creditor nations, and cooperation in the areas of space exploration, double taxation, and agribusiness.

France and Russia signed a memorandum calling for Moscow to pay $400 million to compensate French holders of Russian bonds, issued between 1882 and 1917. However, an association of French bondholders, which calculated the Russian debt for Tsarist-era bonds at about $32 billion, called the sum "laughable." Russia has already reimbursed bond holders in Britain, Canada, the US, and Switzerland, but the French were the biggest buyers of the bonds.

France, as a member of the Paris Club, also agreed to help restructure part of Russia's foreign debt, which is currently to be repaid over 25 years.

CHERNOMYRDIN was scheduled to meet with International Monetary Fund (IMF) head Michel CAMDESSUS in Paris today. IMF officials left Moscow this week without deciding whether to release the next monthly tranche of a $10.2 billion loan.

Basayev Seeks Chechen Presidency

· The presidential election campaign kicked off in Chechnya today with two Chechen rebel leaders declaring their candidacies, reported Russian Public Television (ORT). Chechen rebel president Zelimkhan Yandarbiyev, who took over after Dzhokhar DUDAYEV was killed in April, will compete

against rebel field commander Shamil Basayev, who led a rebel raid on the southern Russian city of Budyennovsk in May 1995, for the Chechen presidency in January 27 elections.

In related news, the Russian Defense Ministry said today that it will begin withdrawing the last two Russian military brigades from Chechnya on December 1 and complete the pullout by January 25, just before the planned elections, reported Interfax. However, the Ministry said the two brigades, about 6,000 men, will be relocated to areas of Russia neighboring Chechnya, to serve as protection against possible cross-border Chechen attacks.

CIS Eyes Cooperation with Mercosur

· Representatives of the Commonwealth of Independent States (CIS) and Mercosur, South America's largest trading bloc, signed a communiqué in Brazil Tuesday on future cooperation between the two groups, reported Xinhua. The agreement, signed by Russian Deputy Prime Minister Valery Serov, calls for a series of meetings to be held next year between officials from Mercosur, which includes Argentina, Brazil, Uruguay, and Paraguay, and the CIS nations.

SEROV said his country wants to expand trade and economic relations with the four Mercosur countries. He said that the CIS sees possibilities for exporting products such as fertilizers, rare minerals, heavy vehicles, and natural gas to Mercosur countries, while the CIS wants to import such goods as meat, coffee,

Today's News Highlights


Explosion at Moscow High-rise

AvtoVAZ Faces Bankruptcy

Morgan Stanley Russia Index

European Republics

IGC Forecasts for the CIS

New Premier for Lithuania

Coastal Estonia JV a Success

Transcaucasia & Central Asia

EBRD Loan US-Georgia Bank

Another Azeri Oil Deal




November 27, 1996

Intercon's Daily

citrus fruits, and other food products. He also said that Russia sees the potential for joint commercial projects in electricity generation, telecommunications, and natural gas, as well as in space exploration. Serov said Russia and Brazil are to set up a joint cooperation commission on the initiative of Brazilian President Fernando Cardoso and Russian President Boris Yeltsin.

Explosion at Moscow Highrise

· On Tuesday, a blast struck one of the Moscow wedding-cake style high-rises, known as Stalin's sisters, which houses many Russian intellectuals and artists, reported Komsomolskaya Pravda today. A homemade explosive device went off at an apartment in the building on Kotelnicheskaya Embankment, a Federal Security Service (FSB) spokesman told the paper. The device was planted at the door of actor Oleg Vidov, who is currently in Hollywood shooting a film. The reason for the blast is not known.


Ruble = 5,500/$1.00 (NY rate)

Ruble = 5,503/$1.00 (CB rate)

Ruble = 5,495|5,511/$1.00 (buy|sell rates)

Inclined Ruble Band to Stay

· Russian government and the Central Bank released a joint statement on Tuesday saying that the current method for determining the ruble exchange rate will be maintained over the next year. The currently-used inclined ruble corridor, an adjustable currency peg tied to inflation, was introduced in July. It allow the ruble-dollar exchange rate to fluctuate within a couple of percentage points on either side of a central target, set daily by the Central Bank. Beginning January 1, 1997, the ruble will be allowed to fluctuate between 5,500 and 6,100 rubles per dollar, and from December 31, 1997, the limits will be changed to 5,750 to 6,350 rubles per dollar.

The 1997 inclined corridor is in line with the government's plans for 11.8 percent annual inflation and a budget deficit of 3.5 percent of gross domestic product (GDP). These targets are set in the government's draft 1997 budget, which will be debated in the Russian State Duma next week.

Yasin Pessimistic on the Economy

· Russian Economy Minister Yevgeny YASIN

believes that some major changes should be made in the current reform course to maintain economic stability in Russia. In a private letter sent last month to Prime Minister Viktor CHERNOMYRDIN, published by Nezavisimaya Gazeta on Tuesday, YASIN said that the economic forecasts made after President YELTSIN's re-election were unrealistically optimistic and he outlined several new reform proposals. His most concrete and radical proposal was aimed at reducing military expenditures by enlarging the planned reductions in the armed services, including in the Interior Ministry. He argued that increasing the number of police and Interior Ministry troops will not effectively reduce crime in Russia.

In related news, YELTSIN signed an order Tuesday ordering a 15 percent reduction in the personnel of the army and other military agencies during 1997, reported Itar-Tass. The order mandated that, beginning January 1, 1997, all conscripts should be drafted solely into the armed forces, and border and railroad security troops.

AvtoVAZ Facing Bankruptcy

· Russian First Deputy Prime Minister Vladimir Potanin on Tuesday gave Federal Bankruptcy Agency head Pyotr MOSTOVOI the go ahead to begin bankruptcy proceedings against Volga automaker AvtoVAZ, reported today's Segodnya. As for October 1, the total debts of AvtoVAZ amounted to 11 trillion rubles (about $2 billion), of which over two trillion rubles is owed to the federal budget and one trillion toward the Pension Fund.

The Russian government, however, has devised a way out of bankruptcy for the auto company. The privatization ministry and the Central Bank have drafted a presidential decree which would give AvtoVAZ two months to decide whether to sell a controlling interest by issuing additional shares and use the proceeds to pay off the company's debts. The decree requires AvtoVAZ to sell the shares in one block to a strategic investor. MOSTOVOI specifically suggested that the stake be sold to Italy's Fiat, which helped build the AvtoVAZ plant in 1970, or to an Asian car company, said Prime-Tass.

However, Segodnya suggests that AvtoVAZ's managers are not pleased with the idea of relinquishing control. The newspaper believes that the chairman of AvtoVAZ's board of directors Vladimir

When you need to know it as it happens




November 27, 1996

Intercon's Daily

Kadannikov, who is a former First Deputy Prime Minister, will try to use his influence with President Boris YELTSIN to save the company from both bankruptcy and the sale of its shares.


Vozrozhdeniye to Sell ADRs to Foreigners

· One of Russia's largest banks, Vozrozhdeniye, has received permission from the Central Bank to sell its American Depositary Receipts (ADRs) to foreign investors, reported Reuters on Monday. The bank received US Securities and Exchange Commission (SEC) permission to issue Level One ADRs in July, but according to Russian law, a bank cannot sell its shares to foreigners without Central bank permission. The bank said that its ADRs will not cover more than three percent of its 25.54 billion ruble capital. The Bank of New York will be Vozrozhdeniye's depositary.

Morgan Stanley Launches Index

· Morgan Stanley & Co. on Tuesday launched the Morgan Stanley Capital International Russia Index, which includes 14 securities, reported Dow Jones. The MSCI Russia Index includes Lukoil Holding, Unified Energy Systems (UES), Gazprom, Surgutneftegaz, Rostelekom, Irkutskenergo, Norilsk Nickel, Kamaz, GUM trading house, and GAZ automaker. The 14 companies have total market capitalization of $19.5 billion, or about 50 percent of Russia's market capitalization.

production forecasts are Russia—35.5 MMT (38.5 MMT) and Ukraine—13.6 MMT (13.6 MMT).

Vagnorius Nominated for Litho. Premier

· Lithuanian President Algirdas Brazauskas today presented to the parliament his nominee for new prime minister, Gediminas Vagnorius, reported Itar-Tass. Vagnorius, 39, is a leader of the rightist Homeland Union party. If approved by the parliament, Vagnorius will present his nominations for cabinet members to the president on Thursday. Approval of Vagnorius is virtually assured as the coalition of the Homeland Union and Christian Democrats control 86 seats in the parliament. Vagnorius served as prime minister of Lithuania in 1991-92, stepping down when his party lost control of parliament in the 1992 elections.

Meanwhile, Homeland Union leader Vytautas Landsbergis was elected speaker of parliament on Monday. LANDSBERGIS, a former president, is expected to begin preparations for another presidential bid in the next elections, scheduled for 1997.

Coastal Exports Oil Through Estonia

· Houston-based energy holding company Coastal Corporation announced on Tuesday that it has made its first shipment of Russian oil to the US through its new Tallinn Terminal joint venture in Estonia, said a Coastal press release. The cargo has been sold to British Petroleum and is scheduled to arrive in New York on November 28. "The fact that our chartered tanker was the largest petroleum products ship ever loaded in Muuga Port shows the potential of our new facilities and import and export operations," said Coastal CEO David A. Arledge.

The Coastal-chartered tanker, Protank Orinoco, was loaded November 13 with 45,624 metric tons of Russian fuel oil and was shipped by rail to Coastal's joint venture terminal in Estonia. From there, it was transported through the joint venture's newly constructed 4.6-mile pipeline to the Port of Muuga, one of the Baltic's deepest ports.

In September, Coastal announced the official start-up of the Tallinn Terminal, which is owned and operated by E.O.S. (Estonia Oil Services) Ltd. to export crude oil and petroleum products. E.O.S. Ltd. is an Estonian subsidiary of Coastal Baltica Holding Company Ltd., which is jointly owned by a Coastal

European Republics

New IGC Forecasts for the CIS

· London-based International Grain Council (IGC) on Tuesday released its latest forecasts for output and imports by the Commonwealth of Independent States (CIS), said Futures World News (FWN). The Council increased to 4.3 million metric tons (MMT) from 4.2 MMT its forecasts of wheat and coarse grain imports by the CIS in 1996-97. CIS 1995-96 grain imports were put at 4.1 MMT. The figure for Russian grain imports in 1996-97 is unchanged at 1.5 MMT.

The latest 1996-97 wheat crop forecasts (with previous projections in brackets) for the CIS are as follows: Russia 34.0—MMT (34.0 MMT), Ukraine—13.2 MMT (14.0 MMT), and Kazakhstan—9.5 MMT (9.5 MMT). The IGC's latest 1996-97 coarse grain

When you need to know it as it happens




November 27, 1996

Intercon's Daily

subsidiary and Baltica Finance N.V., a Swedish-Dutch-owned company.

Coastal Baltica's port, rail, storage, and pipeline facilities can handle the import and export of up to 2.5 million metric tons of petroleum products annually. E.O.S. has storage capacity of 120,000 cubic meters. More than 160 rail tank cars can be unloaded daily.

Transcaucasia and Central Asia

EBRD Loan for Georgian-US Bank

· The board of directors of the European Bank for Reconstruction and Development (EBRD) last week approved a $5 million loan facility for Absolute Bank of Tblisi, a Georgian-US joint venture, according to Intercon sources. Four US investors own 60-percent of the commercial bank, which has $3 million in assets, making it one of the largest in Georgia in terms of capital, according to the Georgian news agency. Absolute Bank will use the EBRD loan to provide medium-term credits to private sector companies in Georgia. A final agreement on the loan will be signed in Tblisi on December 11.

New Azeri Prime Minister Named

· Azeri President Geidar ALIYEV on Tuesday appointed his former aide Artur Rasizade, 61, as the country's prime minister, reported the Associated Press (AP). RASIZADE has served as acting premier since July when Fuad GULIYEV was forced to resign as part of a Cabinet shakeup. An oil engineer by training, Rasizade held several high Communist party and government posts during the Soviet era.

Another Azeri Oil Deal to Be Signed

· A US-led consortium will sign a contract with Azerbaijan on December 14 to explore and develop the Ashrafi and Dan Ulduzu oilfields in the Caspian Sea, reported United Press International (UPI) on Tuesday, citing Amoco adviser Zukhrab Sukhrani. The consortium comprises US Amoco and Unocal, Saudi Arabia's Delta Nimir, and Japan's Itochu Oil Exploration Ltd. Amoco will be the operator with a 30

percent stake in the consortium, while an alliance of Unocal and Delta Nimir will hold another 30 percent (with 25.5 percent belonging to Unocal), and Itochu will have 20 percent. Azeri state oil company SOCAR will hold the remaining 20 percent stake, but may sell a portion of its share. Russia's Lukoil has expressed an interest in joining the project.

The fields are located on the Caspian's Apsheron archipelago, just northwest of the Karabakh field. Ashrafi was discovered in 1982, but geological work was halted in 1987 for lack of funds. Reserves are estimated at 420 million barrels (60 million tons) of oil and condensate, and 1.05 trillion cubic feet (30 billion cubic meters) of natural gas. Dan Ulduzu's potential reserves are believed to be similar.

In a separate deal, US Conoco has initialed a memorandum of understanding with the Azeri government on reserves in the Caspian's Guneshli deposit not covered by the Azerbaijan International Oil Company (AIOC) contract, reported Reuters today. Under the agreement, Conoco, a subsidiary of DuPont Co., is permitted to rehabilitate wells and drill new ones at Guneshli, which accounts for nearly three-quarters of Azeri oil output, said the report.

US Mobil and Chevron, France's Elf Aquitaine, and Britain's Monument Oil are among those foreign oil companies currently exploring Caspian opportunities, Azeri officials told Reuters.

Azerbaijan seems to have stepped up negotiations with foreign firms on Caspian oil development projects even as the five Caspian littoral states are discussing the Sea's legal status. At the most recent talks on the division of Caspian resources, Iran and Turkmenistan accepted a Russian proposal that each country's exclusive economic zone (EEZ) extend about 40 miles from their coastlines. Some of the Azeri offshore fields slated for development by foreign firms, including Guneshli, lie outside this 40-mile limit.

Daily Report on Russia & the FSU will not be published

on Thursday and Friday, November 28_29, for Thanksgiving.

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

available for non-profit institutions.

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.

When you need to know it as it happens