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 8, 1996

Russian Federation

Politics

Yeltsin Moves to Kremlin Hospital

· Russian President Boris YELTSIN was transferred from the cardiology clinic where he underwent bypass surgery three days ago to the Central Clinic Hospital in the Kremlin today. Doctors and presidential aides say that the Russian president is raring to get back to work, and could be performing most of his duties within two weeks.

Primakov Meets with EU Representatives

· Russian Foreign Minister Yevgeny PRIMAKOV is meeting today with European Union representatives, including the foreign ministers of Italy, Ireland, and the Netherlands, reported Russian television. The European Union trio represent the former, operating, and future chairmen of the EU Council. European Commissioner in charge of the NIS Hans van den Broek will also participate in the talks. The officials will discuss Russia-EU relations and the situation in the former Yugoslavia.

Economy

AIDS Spreading Quickly in Russia

· Eight hundred new cases of the HIV virus which causes AIDS have been registered in Russia so far this year, more than quadrupling previous years' totals, said epidemiologist Irina SAVCHENKO of the Russian Center against AIDS on Thursday, reported the Associated Press (AP). Only 190 cases were registered in all of 1995. As many as 560 of the new cases were among intravenous drug users, she said. "The process was very slow while homosexuals, prostitutes, etc. were spreading HIV. But when the disease enters the environment of drug addicts, it starts to spread like a forest fire." According to official statistics, 1,925 people in Russia, including 282

children, have been registered as having AIDS since 1987, 163 of them had died by early November. Actual figures are believed to be considerably higher.

Rabobank Forms Russian JV

· Dutch Rabobank Nederland's consultancy unit Rural Investment Advisory Services (RIAS) has set up a joint venture with Russia's Agroprombank and Interagrofond, said Rabobank officials today, reported Reuters. The new organization will be managed by Rabobank and advise on privatization and restructuring in the Russian food and agribusiness sectors from its Moscow office. The Dutch bank said the partnership will combine the local know-how of Agroprombank, Interagrofond's investment strength, and Rabobank's international expertise. The joint venture does not as yet have a name, and no financial details of the deal were disclosed.

Business

Cellular Firm to Show on NYSE

· Moscow cellular phone company VimpelCom plans to become the first Russian company to be listed on the New York Stock Exchange (NYSE). VimpelCom says it is the largest provider of cellular telecommunications in Russia, with its service, called Bee Line, capturing 59 percent of the Moscow area market. The company operates the only Digital Advanced Mobile Phone System (DAMPS) 800 MHz cellular system in the Moscow area.

The company has planned an initial public offering of

Today's News Highlights

Russia

Oil Pipeline Plan Du Jour

Russian Oil Officials in Brazil

Intercon Special Feature:

An Eye on New Rus. Leaders

European Republics

Bechtel to Handle NIS from VA

Lukashenko Pushes Referendum

Transcaucasia & Central Asia

French Elf in Caspian Oil Deal

Monument/Mobil in Turkmenistan

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Intercon's Daily

Ruble = 5,455/$1.00 (NY rate)

at the Croatian deepwater oil port of Omisalj in the northern Adriatic. Omisalj has the advantages of extensive underused storage facilities, accommodations for two 400,000dwt tankers, and easy access to markets in Italy and the western Mediterranean.

INA managing director Andrija KOJAKOVIC told an investment conference in Zagreb Thursday that, "the Russians are interested in using the pipeline to export crude and see it as an alternative to the Bulgarian project," said FT. However, a representative of the Bulgarian-Greek line said he heard nothing about scuttling the project, said the paper.

Russia Wants to Refine Oil in Brazil

· A Russian trade mission is in Rio de Janeiro negotiating with Brazil's state oil company Petrobras on the possibility of refining Russian oil in Brazil, reported Reuters. Petrobras said it is studying the proposal to see if it can accommodate the Russians. It would not comment on the amount of oil involved.

Jun Jul Aug Sep Oct Nov

5.24 million American Depositary Shares (ADS) for next Thursday, reported the Associated Press (AP) today. It expects them to sell for between $15.75 and $18.75 each. The ADSs are expected to represent 3,920,000 shares of Common Stock. VimpleCom will begin trading on the NYSE the next day under the ticker symbol VIP.

Shares in two Russian companies, oil conglomerate Lukoil and utility Mosenergo, have been traded on NASDAQ's over-the-counter market, but these shares were traded on a limited basis and weren't publicly quoted. No Russian companies have been listed on the American Stock Exchange.

Oil Pipeline Plan Du Jour

· Russian oil officials are now rethinking plans to build an export pipeline from the Bulgarian Black Sea port of Bourgas to the Greek Aegean Sea port of Alexandroupolis, reported today's Financial Times. Construction of the 350 km pipeline, which was seen as a way for Russia to control the export of Caspian Sea oil and transship it through the port of Novorossiisk, would cost an estimated $600 million and has several disadvantages.

Instead, the Russian oil ministry and oil transport company Transneft are negotiating with Croatian oil company INA on a proposed $120 million plan to transport up to 14 million tons of oil annually along the Jadran pipeline. INA owns a 33 percent interest in Jadran. The Croatian pipeline connects with Russia's Druzhba (friendship) pipeline, which begin at Orenburg, at Gola in northern Croatia. It terminates

European Republics

Bechtel to Handle CIS from VA

· California-based Bechtel National Inc. (BNI) officially opened an office on Thursday in Tysons Corner, Northern Virginia, to serve as its East Coast center of operations for the company's projects in the former Soviet Union, Central and Eastern Europe, and the Baltics, said a company press release. Several major BNI programs will be managed by the Northern Virginia office, including its activities for the US government's Cooperative Threat Reduction (CTR) program and other US nuclear safety upgrade projects. Bechtel is currently at work on six CTR projects, valued at more than $100 million.

"We plan to consolidate our CTR projects to take advantage of procedures and lessons learned, to improve logistics, and to cooperate with Moscow, Kiev and Ukraine," said BNI's Ron Naventi, vice president of Operations in Defense and International Programs. "The Northern Virginia office will bring us into much closer contact with our customers, many of whom are based in the East Coast region."

The Bechtel International Consulting Group, currently helping Moscow and governments of the former Eastern Bloc create new laws and economic rules to restructure their energy industries, will be

When you need to know it as it happens

Politics-Economics-Business

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November 8, 1996

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Intercon Special Feature

Insider's Outlook:

An Eye on the New Russian Leaders

by Oleg D. Kalugin

The ordinary Russian has always been cynical and distrustful of his rulers. But now his imagination and dormant anti-Semitic sentiments may well flare up and open a Pandora's box of spiteful public outcries. The chronic prejudices and fears of a "Jewish conspiracy" will pile up on top of official hysterics about NATO's eastward expansion and other anti-Western motifs. They will fuel a nationalist and communist revival and inevitably exacerbate the situation in the country. No doubt the ostracized General Aleksandr LEBED will try to take advantage of the profound public discontent to his own ends. On the day of his dismissal from the Security Council, LEBED charged that banker Boris BEREZOVSKY attempted to scare him. When the attempt failed, BEREZOVSKY exclaimed in desperation, "What business you have destroyed (in Chechnya)! Everything was going fine. ... Well, some killing took place, but there always was, and always will be some killing." The Russian public will certainly take note of this involuntary confession.

As the Russian nouveau riche are entrenching themselves in the palatial chambers of the Kremlin, more traditionally-oriented government officials have been frantically occupied with moth-eaten ideas for emergency measures to halt the decline of the country's economy. Some even called for an "economic dictatorship," others for heavier involvement of law enforcement agencies. The creation of the presidential emergency commission to tighten tax and budgetary discipline has been hailed by many as a timely step in the right direction. But will a masked tax policeman in fatigues carrying a Kalashnikov become the main engine of the economy? Or will the "young turks" finally take over and lead the country on to its new destiny?

Barely having regained consciousness after surgery, YELTSIN signed a decree proclaiming November 7, the 79th anniversary of the Communist takeover in Russia, the "Day of Reconciliation and Unity." Having relentlessly removed the old clique of his buddies from power, he now must achieve civic peace and harmony with a new clique of unscrupulous wheeler-dealers. Whether this will lead Russia out of the current economic crisis remains to be seen, but there is little doubt that it will plunge Russian society into yet another whirlwind of emotionally-charged strife and discord.

(Dialogue overheard between the Russian president and his chief of staff:)

Boris YELTSIN: "What kind of society is that?"

Anatoly CHUBAIS: "Some go hungry, others do not pay taxes."

This exchange occurred as YELTSIN was bracing for his heart surgery. The ailing man was in the dark about his own and his country's course. Now that he has survived his grueling ordeal, does he comprehend where Russia is heading?

By ironic coincidence, the presidents of the world's two great nations got a new lease on life on the same day, and are projected to finish their tenure simultaneously in the year 2000. But while one has been presiding over a generally predictable economic and social environment, the other has been staggering through ruins and groping in the morass of the unknown. He abandoned his erstwhile ideological allies and cronies and embarked on a path lined with poisonous thorns. Let's face it: Russia is run today by an exclusive club of bankers and businessmen who are more likely to further their own interests than those of their country. They represent the young Russian capital: raw, abrasive, often criminal. It was CHUBAIS, their principal mouthpiece, who said of them some time ago, "Let them steal and take the property. They will some day become owners and decent administrators of their property."

The emergence of "new Russians" in positions of power marks a transition from shadowy undercover politics in Russia to legal politics. In a country with washed out authority, fragmented and ineffectual controls, the only tools now available to the government are the media and money (budget, wages, taxes). All are in the hands of people like BEREZOVSKY, GUSINSKY, SMOLENSKY, FRIEDMAN, et al. One of them who, as it turned out, has Israeli citizenship alongside Russian, has been appointed Deputy Secretary of the Security Council—an unprecedented move by any standard.

When you need to know it as it happens

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housed in the new office as well. The group is halfway through a three-year contract from the US Agency for International Development (USAID) to help 11 countries, including the three Baltic states, establish new energy laws and policies to create new systems for their emerging free-market economies.

The new office will house 35 permanent employees, including several members of BNI's management team, with additional growth expected in 1997 as other Bechtel projects move into the office.

Lukashenko to Push Ahead Referendum

· On Thursday, Belarus President Aleksandr Lukashenko signed a decree declaring null and void resolutions passed this week by the parliament and the Constitutional Court on the referendum planned for November 24. The Constitutional Court ruled on Monday that the parliament should decide whether the referendum would be legally binding; the parliament then voted to make the results advisory, rather than mandatory. On Wednesday, LUKASHENKO had decreed that a republican referendum on amendments to the constitution "shall be final and shall need no approval," but he apparently deemed this insufficient. Also, he warned, along with this latest decree, that he will dissolve parliament and the court, if they oppose his referendum.

"It cancels, suspends the illegal decision of the Supreme Soviet (parliament) and the ruling of the Constitutional Court. From today they do not apply," said presidential aide Mikhail SAZANOV, reported Reuters. "I am sure the ... deputies are intelligent enough not to block the referendum," he added.

The parliament is apparently unsure of its next move and expects the worst from LUKASHENKO. "He went right over the top. It's completely wild and will bring nothing good. It is a primitive decision," parliament first deputy speaker Vasily NOVIKOV told Reuters. "We made no mistakes. But the president is very nervous. We are not afraid of dissolution, or finding a padlock on the doors to parliament."

Lukashenko has also ordered the publication of several million copies of amendments to the constitution, which will be delivered to potential voters.

Transcaucasia and Central Asia

Russia's Berezovsky in Georgia

· Georgian President Eduard SHEVARDNADZE met for talks today with Russian Security Council deputy secretary Boris BEREZOVSKY in Tblisi, said RIA Novosti. According to Intercon sources, the Security Council representative forwarded the view that Russia should refocus its relations with Georgia from military to economic matters.

France's Elf in Azeri Caspian Oil Deal

· French oil company Elf Aquitaine will sign an agreement with the government of Azerbaijan in January to develop an oilfield on the Caspian Sea shelf, reported United Press International (UPI) today. A high-level Elf representative met with Azeri state oil company SOCAR officials in Baku today for talks on exploring and drilling the Lenkorandeniz field. The two sides will sign a contract on the filed during a state visit to France by Azeri President Geidar ALIYEV. SOCAR said the field, located near the mouth of the Kura river south of Baku, and at a depth of 9,000-16,000 feet, may contain reserves of 50-60 million metric tons of oil.

Mobil and Monument in Turkmenistan

· Turkmenistan has accepted US Mobil Corp. and Britain's Monument Oil & Gas Plc. as strategic partners in an effort to rehabilitate over 2,000 oil wells in the western Balkan region, reported Russian media on Thursday. The region's fields have confirmed reserves of over two million tons of crude, according to Turkmen figures. Turkmen President Saparmurat NIYAZOV met with Monument chief Anthony CRAVEN and Mobil vice-president Gregory RENWICK in Ashgabat to discuss the project. In August, Monument signed a 25-year exploration and production-sharing accord with Turkmenistan covering three deposits in the west of the country.

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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