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, January 14, 1997

Russian Federation

Politics

Duma Considers Impeaching Yeltsin

· Russian State Duma deputy Viktor ILYUKHIN (Communist) introduced a motion today to impeach President Boris YELTSIN on the grounds that he is too sick to run the country. The parliament's legal section is deciding whether the body will debate the issue, but few legislators consider impeachment a real possibility. The impeachment procedure outlined in the constitution is vague and previous attempts to remove the president have failed. Yeltsin has been in the hospital for nearly a week with double pneumonia, but doctors say they expect him to make a full recovery.

A government spokesman said today that Prime Minister Viktor CHERNOMYRDIN will return to Moscow from vacation on Friday to attend a summit of CIS prime and foreign ministers.

New Belarus Merger Plan Criticized as Politics

· Russian Communist Party leader Gennady ZYUGANOV and the country's most ambitious politician Aleksandr LEBED said that, although in agreement with the idea of a union between Russia and Belarus, they viewed the initiative that came out of the Kremlin yesterday as populism. A spokesman announced Monday that President Boris YELTSIN, in the hospital with pneumonia, had sent a letter to his Belarussian counterpart suggesting referendums be held on integrating the two countries. In April 1996, two months before the presidential elections, YELTSIN stole the re-integration issue from the communists and nationalists by signing an accord on closer economic and political relations with Belarus.

"We want Russia to merge with Belarus, Ukraine, and other states of the former Soviet Union. But

those who trampled this idea under foot should have been more energetic in implementing the plan of April 2 last year to create a commonwealth between Russia and Belarus, and this has not been done," ZYUGANOV is quoted by Reuters as saying. "It's political intrigue."

"It's a political trick," Interfax cited LEBED as saying. "The idea itself is a good one but considering the timing of the announcement, it looks like another attempt to divert Russian society's attention away from vital internal state problems." LEBED also suggested that this initiative was another example of YELTSIN's advisors running the show while the president lay ill.

Lebed in Germany

· Russia's former Security Council secretary Aleksandr Lebed arrived in Germany today to hold talks with political leaders and observers in Bonn and Munich. The German government has reportedly declined to set up any meetings between official representatives and LEBED.

In an interview with a Berlin newspaper, LEBED said he expects elections this year because President Boris Yeltsin is physically incapable of exercising the office, reported United Press International (UPI). He said a new election campaign could start in March because crises traditionally come to a head in Russia during the spring. He said constitutional reform is a main priority and he wants the president's pow

Today's News Highlights

Russia

Nationwide Teachers Strike

Nuclear Ministry Exports Up

Norilsk Plant Insolvency

Sony in Moscow Church Deal

European Republics

Genesis Merger w/Oil Baltija

Transcaucasia & Central Asia

Israel in Georgia Telecom Deal

Pennzoil Caspian -- New Chief

SOCAR 1996 Oil & Gas Output

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ers limited and shared with the government, parliament, and supreme court.

Following the Germany trip, LEBED may attend CLINTON's inauguration in Washington next week, reported today's Washington Post. The paper did not indicate who had invited LEBED to the US.

Economy

Ruble = 5,600/$1.00 (NY rate)

Ruble = 5,596/$1.00 (CB rate)

Ruble = 5,589|5,603/$1.00 (buy|sell rates)

Teachers Strike Envelops Russia

· Nationwide teachers strikes began in Russia on Monday with teachers from more than 10,000 schools in some 56 regions picketing government buildings to demand payment of wage arrears and increased budget funding for education. Vladimir Yakovlev, head of the Russian Trade Union of Workers of Science, Education, and Culture, sent a letter to the government asking it to preserve public education, pay back wages totaling 6.5 trillion rubles (over $1.1 billion), and guarantee that they receive monthly pay on a regular basis, beginning on February 1, reported Itar-Tass. The letter said that wage arrears should be returned within a time frame to be agreed by relevant local authorities and teachers' trade unions. YAKOVLEV told Interfax that more than three million children would be affected by the strike, which could last for five days.

First Deputy Prime Minister Viktor Ilyushin, who was sent to address the protesters, said on Monday that the cabinet will consider its billion-dollar debt to the sector at its Thursday session. The average salary of a schoolteacher is about 538,000 rubles (less than $100), or 56 percent of the average for industrial workers.

Communist Party leader Gennady ZYUGANOV supported the strike, telling demonstrators outside Russia's White House government headquarters that: "Teachers are the last in line, the most unprotected and deprived," reported Reuters. "Teachers have been forgotten everywhere."

Russia to Increase Nuclear Exports

· Russian Nuclear Energy Minister Viktor MIKHAILOV said Monday that Russia would in

crease exports of nuclear technology, in part to assist the cash-strapped domestic nuclear industry, reported Reuters. The Ministry's exports in 1996 totaled $2 billion, an increase of 10 percent over the 1995 level. MIKHAILOV defended a controversial nuclear deal with Iran and pledged that Russia would forge ahead to complete construction of nuclear power plants in China and similar plans in India.

"Export should be increased. We cannot solve the problems by dividing countries into ones that are loved and ones that are not loved.... This would only stimulate terrorism," he told reporters in Moscow. "It is better to be friends and to cooperate.

In addition to the above projects, Russia is reportedly discussing sales of nuclear technology with Egypt, Saudi Arabia, Brazil, and Vietnam. One Nuclear Ministry official told Reuters that Russia had also been negotiating with Indonesia on supplies of nuclear reactors which can be based on ships and with Cuba on completion of a nuclear plant.

Nuclear power accounts for 12 percent of the electricity generated in Russia. Most new projects were delayed after the accident at the Chernobyl nuclear station in 1986, but some planned stations are going forward. Moscow recently announced plans to shut down 18 aging reactors by the year 2010.

Business

Some Privatization Results and Plans

· The Russian State Property Committee (Goskomimuchestvo) on Friday announced the results of last month's tender for an 8.5 percent stake in electricity monopoly Unified Energy Systems (UES). A branch office of one of Russia's largest banks, Inkombank, bought the stake for 513 rubles per share, up slightly from the initial tender price of 500 rubles a share, reported Russian television (RTV). Since the sale, the share price has risen to 677 rubles a share.

In addition, Russia's Interrosoil won a tender for a 51 percent stake in Siberian oil company Sidanko, said RTV, citing the tender commission. Interrosoil paid $129.8 million for the stake, which was originally priced at $129 million. Under the conditions of the tender, Interrosoil must invest $160 million in Sidanko this year to develop production. Interrosoil appar

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ently is part of the Interros financial industrial group, which is closely associated with Uneximbank. Interros, representing Uneximbank, acquired a 34 percent stake in Sidanko in a tender last September.

Russian far eastern steel producer Amurstal will sell a 10,000 square meter rolling mill with equipment at an asking price of 10 billion rubles (about $1.8 million), said RTV. It is asking 36 billion rubles for another 24,000 square meters mill. Some administrative buildings are also for sale. Bids will be accepted until January 22. Amurstal was declared bankrupt by a local court last year, put under special management for reorganization, and some assets were earmarked for sale.

Norilsk Could Face Bankruptcy

· The Russian government has threatened to begin bankruptcy proceedings against the Norilsk mining and metallurgy plant, unless the company agrees to issue new stock to pay off its debts, reported Dow Jones on Tuesday, citing Interfax. The facility is the main unit of metals giant Norilsk Nickel. The Norilsk plant's debts total 1.7 trillion rubles, including 505 billion in back taxes. First Deputy Prime Minister Vladimir POTANIN said the situation will be discussed by a special government commission Friday.

The case is particularly interesting in light of the fact that Uneximbank, a commercial bank headed by POTANIN before he joined the government, took control of a large government stake in Norilsk Nikel in late 1995. Since that time the bank has struggled to bring Norilsk's financial difficulties under control and begin restructuring. These efforts have achieved mixed results. Overall, the company's situation is worsening. Tax officials have sporadically frozen company accounts and assets to force payments. A 1996 government bailout of the company disappointed Uneximbank officials by failing to relieve the company of the Soviet era burden of maintaining the Arctic city of Norilsk, where the plant is located.

The new stock issue proposed by the government could mean independence for the metallurgy plant, if Norilsk Nickel does not buy the shares itself to rebuild its stake.

Petersburg Plans Eurobond Issue

· St. Petersburg mayor Vladimir Yakovlev told

Itar-Tass today the city will launch a Eurobond issue in late January-early February. Initially, the city will issue $100 million worth of 2-5 year Eurobonds. St. Petersburg plans to institute another $300 million issue, later in the year. Based on its success this year, the city will continue the bond program in 1998. In 1995, St. Petersburg city officials issued municipal bonds to raise money for the city.

Sony in Equipment Deal with Russian Church

· The Moscow city government has placed an order worth DM8 million (about $5.1 million) with Sony Broadcast & Professional to build a broadcast center in the reconstructed Christ the Savior Cathedral in Moscow, reported M2 Communications on Monday. The cathedral, which was destroyed during the Stalin era, is currently being rebuilt to celebrate the city's 850th anniversary this year.

The TV complex will include state-of-the-art studios with Sony production equipment, edit suites, and transmission facilities and will be used to broadcast all programs produced in the cathedral, including services and synods. The installation is expected to be finished by September to coincide with the completion of the Cathedral and the celebration of the city's anniversary.

Sony Systems Integration in Basingstoke, UK, will be responsible for the design, supply, and complete installation of the new broadcast center in the cathedral, along with full operational training for all staff. When completed, the cathedral will use four BVP-500 studio cameras, 12 BVP-550 handheld cameras, and another five remote-controlled BVP-550 cameras. It will also get a 3M/E digital video mixer, a digital special effects system, and complete audio mixer desk. There will be 64 monitors for use in the broadcast center and the cathedral itself. The Moscow city government also invested in a complete Sony recording and editing system, as well as Sony transmission equipment.

Ilya Doronin at Sony Broadcast & Professional in Moscow, explained: "This contract is of great importance for Sony and following as it does on the large order from Moscow TV (MTK), further reinforces our presence in Russia." Sony Systems Integration recently undertook a full studio refurbishment at MTK's facilities.

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European Republics

US Genesis Merger with Oil Baltija Group

· Genesis Safety Systems (GSS) of Wayne, New Jersey, announced Monday an agreement with Oil Baltija Group, Ltd. (OBG) to acquire all of the outstanding shares of capital stock of OBG in exchange for issuing 22,500,000 (post-split shares) of its common stock to the current shareholders of OBG, said a company press release.

Following the transaction, GSS will change its name to Oil Baltija Group, Ltd., affect a reverse split of its outstanding shares of common stock—making every ten shares of GSS common stock worth one share of new stock, and transfer all its assets and liabilities to a newly-organized corporation which shall be owned by the shareholders of Genesis at the close of business on January 21, 1997. In addition, the directors of GSS will resign in favor of a group of senior officials from Russian gas monopoly Gazprom, Russian oil giant Lukoil, and Lukoil Baltija.

OBG, a British Virgin Islands corporation, is owner of Lukoil Baltija (LB), the largest crude oil and oil product trading and retail company in the Baltic states. As of December 1996, LB was operating eight subsidiaries, 35 gas stations, and eight oil storage facilities located in the Baltic region. It owns a fleet of 15 tank trucks. The company has long-term access to Lithuania's Mazekiai oil refinery. The bulk of LB's activities involve wholesale oil and oil products trading. Crude oil is purchased, in particular from Lukoil, refined in Mazekiai, and sold to distributors in the Baltics, Belarus, Ukraine, and other states in the region.

Genesis Safety Systems, a pharmaceuticals company, refused to comment on the agreement.

Transcaucasia and Central Asia

Israel Firm in Georgia Telephone Deal

· Israeli communications company Telrad has

launched a telephone modernization program in Kutaisi, Georgia's second biggest city, reported Itar-Tass, citing a source in the mayor's office. Telrad bested seven other companies in a tender, announced by the Georgian Communications Ministry in 1996. Telrad has begun preparations for assembling a new automatic telephone station with a capacity of 30,000 numbers. In addition, Telrad will restore half of Kutaisi's telephone cable network.

Pennzoil Caspian Gets New President

· Houston-based Pennzoil Company announced on Monday that Igor EFFIMOFF, formerly chief executive of Larmag Energy NV, has joined its Baku office as president of Pennzoil Caspian Corp., said a company press release. EFFIMOFF is an ethnic Azeri who was raised in Iran and educated in the US. Larmag is a privately-held oil and gas company based in the Netherlands, which operates producing fields in the Caspian Sea.

EFFIMOFF's new responsibilities include representing Pennzoil with the Azerbaijan state oil company SOCAR, the government of Azerbaijan, and the management committees for the Karabakh and the Azeri-Chirag-Guneshli joint operating companies. He will also develop new opportunities for Pennzoil in Azerbaijan and the surrounding Caspian area.

SOCAR Announces 1996 Figures

· Azerbaijan's state oil company SOCAR today announced that 1996 oil output was on target at 9.1 million tons, while gas production was 6.3 billion cubic meters—4.5 percent lower than planned, reported Interfax. SOCAR's 1995 output was 9.16 million tons of oil and 6.6 billion cubic meters of gas, both down 4.2 percent from the previous year.

The company also said that 8.9 million tons of oil and 5.3 billion cubic meters of gas were sent for refining, less than planned amounts. Drilling totaled 111,180 meters, 44.4 percent of the target. Offshore fields in the Caspian Sea accounted for 7.5 million tons of oil and five billion cubic meters of gas.

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 1997, Intercon International, USA.

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