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

Monday, January 13, 1997

Russian Federation

Politics

Yeltsin Resumes Work, Criticism Continues

· Russian President Boris Yeltsin, in the hospital suffering from pneumonia, was reported to be in stable condition today and had begun working from his hospital bed, said a Kremlin spokesman. Sergei Mironov, director of the Kremlin medical center said on television Saturday that the president is expected to remain in the hospital for another four or five days and then be transferred to his residence for recuperation.

YELTSIN's wife, Naina, was admitted to the same hospital for an unspecified infection today. Mrs. YELTSIN spent part of last August in the hospital undergoing a kidney operation.

Meanwhile, YELTSIN's political rivals and the press have stepped up calls for YELTSIN's resignation. "I want to become president and I will be president," Russia's most ambitious politician Aleksandr LEBED told Russia's Channel Six television today. LEBED said he was certain that a presidential election would take place before YELTSIN's official term is up in 2000 and claimed to have collected a campaign war chest of $250 million.

Communist Party leader Gennady ZYUGANOV told reporters today that the president was not well enough to rule the country. Asked whether YELTSIN should step down, he said: "We have said this for a long time. I think his close relatives, friends and close circle will say: `Boris Nikolaevich, it is time to have a rest,'" Reuters quoted him as saying.

On NTV independent television weekly political analysis show, Itogi, the station warned that: "For society, the president's illness is mostly not a medical

problem, but a political one.... While the medical forecast is optimistic enough, the political one is mostly unfavorable."

Three Incumbents Win Sunday Regional Polls

· Incumbent governor Leonid Roketsky won a runoff gubernatorial election in Siberia's Tyumen Oblast on Sunday, receiving 58 percent of the vote to 33 percent for his opponent, former banker Sergei Atroshenko.

In the northern Caucasus Republic of Adygea, incumbent President Aslan Dzharimov was re-elected with about 60 percent of the vote. His two opponents Communist State Duma deputy Kazbek Tsiku and businessman Aslanbei Sovmiz (also a Communist Party member) received 13 and 19 percent of the vote, respectively.

Incumbent president of the northern Caucasus Kabardino-Balkaria Republic Valery Kokov ran unopposed on Sunday and received over 50 percent of the vote.

Economy

Ruble = 5,599/$1.00 (NY rate)

Ruble = 5,590/$1.00 (CB rate)

Ruble = 5,581|5,599/$1.00 (buy|sell rates)

Tax Revenues Up, But Miss Target

· Russian tax revenues came in 15 percent below government targets in 1996, thanks to widespread tax evasion and a shrinking economy,

Today's News Highlights

Russia

Almaz Rossii-Sakha in 1996

1997 Privatization Plans

European Republics

Belarus-Russia Integration?

New Belarus Ministers Named

Poverty in Ukraine

Transcaucasia & Central Asia

Azeri President in France

Azeri-Iranian Oil Cooperation

Teck Loses Gold Project Bid

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Monday

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Intercon's Daily

said the State Tax Service on Friday, reported the Associated Press (AP). Revenues were approximately 30 percent below projected levels in the first half of the year, but a government crackdown on the biggest debtors helped bridge some of the gap. The overall economy shrank about six percent in 1996.

Despite falling short of the tax target, revenues did rise 40 percent from 1995 levels, before being adjusted for inflation (22 percent). Collections in 1996 totaled 202 trillion rubles ($36.1 billion), short of the 240 trillion ruble goal.

Almazy Rossii Sakha Results for 1996

· Russia's main diamond company Almazy Rossii-Sakha increased its output by three percent in 1996 and boosted sales of uncut diamonds, company president Vyacheslav Shtyrov told a press conference in Moscow on Saturday. Shtyrov said 1996 was "one of the most difficult in the company's history," according to Itar-Tass.

Among its 1996 achievements, he cited the opening of an ore-dressing plant at the Yubileynaya diamond mine which can process 10 million tons of ore a year. The company plans to start mining diamonds at the Anabar mine, located in the north of the Sakha republic, this year, Shtyrov said, adding that diamond production is expected to grow by 25 percent within the next three years. "Without increasing diamond production, Russia may become an outsider in the world diamond extracting industry in the 21st century," he is quoted by Itar-Tass as saying.

On Saturday, Almazy Rossii-Sakha signed a general agreement guaranteeing steady uncut diamond supplies to Russia's largest diamond-cutting plant, Kristall, in Smolensk. Shtyrov said the three-year agreement is his company's contribution to the support provided to state-run diamond cutting factories to help them get out of their present crisis and restore their production capabilities. Kristall employs 3,000 people. In 1996, disruptions in uncut diamond supplies forced the plant to reduce its output to $150 million worth of cut diamonds from $185 million in 1995. The new agreement is aimed at increasing output of cut diamonds by 1.5 times. Almazy Rossii-Sakha mines about $1.2 billion worth of uncut diamonds a year.

Speaking on relations with world diamond monopoly De Beers, Shtyrov expressed the hope that Almazy Rossii-Sakha may sign an agreement with De Beers in January to sell uncut diamonds for export. "Trade relations with De Beers were basically severed on January 1, 1997, and not a carat of Russian diamonds has been sold since then. There is some uncertainty in relations between Almazy Rossii-Sakha and De Beers," said Shtyrov. A previous agreement between the two companies expired in December 1995. Last year, Russian diamonds intended for export were sold under a bilateral arrangement on the terms of the old agreement.

SHTYROV said the draft of a new marketing agreement has already been examined by the ministries of finance, industry, economics, and trade, and while it has not evoked any serious objections, the government does not seem in a hurry to approve it. At the same time, he believes that "we will manage to survive even if a trade agreement with De Beers is not signed," according to Itar-Tass.

Business

Five Companies Slated for Privatization

· The Russian State Property Committee is completing the terms for selling off five major companies this year, which the government hopes will bring in five trillion rubles for the state budget, reported Interfax today. The companies slated for privatization include telecommunications holding firm Svyazinvest, oil transport monopoly Transneft, national insurer Rosgosstrakh, oil producer Onako, and Russky Dizel, the country's main producer of diesel ship engines. Interfax offered no details of the planned sales, but said the plans would be finalized by the end of the month.

European Republics

Belarus-Russia Integration Emphasized

· In a change of his previous policy stance, Russian President Boris Yeltsin has sent a letter to Belarus leader Aleksandr LUKASHENKO proposing that the two states hold referendums on the unification of the two countries "in some form or other," chief presidential spokesman Sergei Yastrzhembsky told a briefing in the Kremlin today. The two countries signed an agreement in

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April 1996 on closer economic and political ties, setting up a loose "community," but YELTSIN resisted LUKASHENKO's calls for a more formal union.

Deputy head of the Russian presidential administration Sergei SHAKHRAI told Interfax that the merger would meet Russia's strategic and economic interests and would be "the most effective answer to NATO's eastward expansion." Considering the sorry state of the Belarus economy, as well as its alienation from the international community following last November's controversial constitutional referendum, it is difficult to see how closer relations will significantly help Russia. Belarus already allows Russia to maintain several military bases on its territory.

In related news, the Council of Europe decided on Monday to suspend Belarus' special guest status, saying that the country's new legislature had no democratic legitimacy, reported Reuters. "Belarus' new constitution is illegal, and ... does not respect minimum democratic standards and violates the principal of separation of powers and the rule of law," said Leni FISCHER, president of the Council's parliamentary assembly.

Belarus Gets New Defense, Foreign Mins.

· Belarussian President Aleksandr Lukashenko on Saturday appointed new foreign and defense ministers and is expected to choose a new prime minister in the near future. The personnel changes are in line with political changes brought on by the passage of a controversial referendum last year, which greatly expanded presidential powers, and accelerated efforts to integrate Russia and Belarus.

Lieutenant-General Alexander Chumakov, who has served as acting Defense Minister since November 1, 1996, was appointed permanently to the post of defense minister. Chumakov, the former chief of staff of the Belarussian armed forces, replaced Leonid MALTSEV, who was dismissed for arriving drunk at a public function. CHUMAKOV favors closer military ties with Russia and has strongly criticized NATO's planned eastward expansion, particularly the potential inclusion of Poland into the Alliance.

Deputy Foreign Minister Ivan Antonovich was appointed Foreign Minister, replacing Vladimir SYAnko, who will supposedly be transferred to another position. SYANKO held the foreign minister's

post since LUKASHENKO was elected in July 1994. He did not support a union with Russia, however, calling reintegration with Moscow a "mistake."

World Bank on Poverty in Ukraine

· One third of Ukrainians, or 17 million people, are living below the poverty line, reported Xinhua on Saturday, citing a new World Bank survey. The other two-thirds of the Ukrainian population, although having enough food and clothing, has no spare money to conduct social or cultural activities, the said survey. According to the current price index in the country, each person must spend at least 53 hryvnias (about $29) on food a month to live. But the monthly pension for a scientific worker who has worked for 30 years is only 49 hryvnias ($27).

Government figures showed that the average monthly salary for city workers was around 133 hryvnias ($70) in 1996, twice as much as the previous year, while agricultural workers earned 59 hryvnias ($30 dollars) last year. By the end of last September, however, the government owed the country's workers $2 billion in salary arrears. So the actual income in 1996 was 24 percent lower than 1995.

Transcaucasia and Central Asia

Azeri President in France

· Azeri President Geidar Aliyev began a three-day official visit to France today to discuss the development of bilateral relations, particularly trade and economic issues, with French President Jacques Chirac and other officials. Azerbaijan would like to obtain French support for its application for membership in the Council of Europe. Azerbaijan currently has the status of Special Invitee at the Council of Europe, but the lack of resolution to the Nagorno-Karabakh conflict is a major obstacle to admission.

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In October 1996, during a tour of Caucasus states, French Foreign Minister Herve de Charette promised Baku French assistance in a final settlement of the Karabakh conflict. This promise is expected to be a major topic of discussion during Aliyev's current stay in Paris.

As part of ALIYEV's visit, French oil companies Elf Aquitaine SA and Total SA signed an agreement today with Azeri state oil company SOCAR to develop the the Lenkoran-Deniz and Talysh-Deniz offshore oilfields, reported Dow Jones. The two fields, located in the southern part of the Azeri sector of the Caspian, have estimated reserves of 80-100 million tons of oil.

Elf holds a 65 percent stake, SOCAR a 35 percent stake, and Total—10 percent of a consortium that will take part in a 30-year, production-sharing contract, said Dow Jones. Other international oil companies, including US Mobil, and Germany's Deminex, are negotiating to participate in the project. Financial terms were not disclosed, but the project is estimated to cost $2 billion.

Azeri-Iranian Oil Cooperation

· Azerbaijan is inviting Iranian participation in oil exploration and drilling in the Caspian, reported Compass news on Friday, citing the official Islamic Republic News Agency (IRNA). Natik Aliyev, the head of Azeri state oil company SOCAR, told Iranian Ambassador to Baku Alireza Bigdeli during talks Friday that Azerbaijan was ready to cooperate with Iranian companies to produce oil from Caspian Sea fields. Aliyev specifically mentioned the Shah Deniz field, according to IRNA. He added that the two countries could exchange technical expertise on the subject of oil drilling.

Three Central Asian States Seek Closer Ties

· The leaders of Kazakhstan, Uzbekistan, and Kyrgyzstan signed a Permanent Friendship Agreement on Friday in Bishkek calling for closer cooperation, particularly in economic and military areas. The

three countries pledged to take measures to maintain stability in the region and strengthen cooperation in the fields of culture, science and technology, economy and trade. The three countries formed the Central Asian Economic Union (CAEU) in September 1993 to discuss integration. Russia and Tajikistan are expected to become observers at the next CAEU summit.

Teck Loses Bid to Develop Vasilkovskoye

· Canada's Teck Corp. and First Dynasty Mines Ltd. announced Sunday that the government of Kazakhstan has rejected their recent proposal on developing the Vasilkovskoye gold deposit in northern Kazakhstan, said a Teck press release. But Teck said it "remained interested in mining exploration and development in Kazakhstan, including the possibility of re-opening negotiations on Vasilkovskoye, should opportunities become available."

Teck won a June 1996 tender to negotiate a deal to develop the Vasilkovskoye deposit, which has estimated reserves of 14 million ounces. The negotiations later broke down, however, after a dispute with the Kazakh government over a proposed investment plan. The tender was a rerun of an auction held in 1995 that was won by Canada's Placer Dome, but was later scrapped by the Kazakh government.

Updates

Chechnya: Two Russian Orthodox priests, one of whom—Father Yefim—preaches at a Russian Orthodox church in Grozny, were kidnapped on their way to the town of Urus-Martan from Grozny on Thursday. No one had claimed responsibility for the abduction as of this weekend.

Chechen Mufti Hajji Akhmad Kadyrov said Sunday that he would visit the western district, where the two Russian priests were kidnapped, reported Itar-Tass. Kadyrov will meet local officials and Moslem clergymen there and appeal to them for help in the search operation.

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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