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

Thursday, January 16, 1997

Russian Federation

Politics

Seleznev Opposes Impeachment Vote

· Speaker of the Russian State Duma Gennady SELEZNEV said today that he opposes the inclusion on the Duma's agenda of a move to remove President Boris YELTSIN from his post due to his poor health. "I think the issue should be removed (from the agenda) because of the negative assessment from our legal department," SELEZNEV commented, reported Reuters. The motion introduced by security committee chairman Viktor ILYUKHIN will be discussed by Communist deputies later today.

NATO to Offer Russia Special Status

· NATO allies plan to offer Russia a new package of incentives aimed at easing Russian opposition to the Alliance's eastward expansion. The offer includes new flexibility on arms control, greater economic assistance, and a special consultative status, reported today's Washington Post. Although this falls short of the veto power Moscow had called for, it will give Russia a voice on such policy issues as nuclear proliferation, regional defense, peacekeeping, terrorism, and international crime.

The charter outlining a new partnership between the alliance and Moscow will be discussed by NATO Secretary General Javier SOLANA and Russian Foreign Minster Yevgeny PRIMAKOV. Based on Russian approval, the package is scheduled to be ready by the June G-8 summit in Denver, allowing President YELTSIN two weeks to sell the incentives to the Russian parliament before NATO announces its candidates for membership in July.

Russian Defense Minister Igor RODIONOV commented today the Russia does not plan to form any new military alliances in response to NATO's planned

eastward expansion, denying the possibility of a pact with Belarus, reported Xinhua.

Army Conscription System in Crisis

· In an interview with the Russian Defense Ministry newspaper Krasnaya Zvezda, General Mikhail KLISHIN said the country's army conscription was facing a crisis situation, reported Reuters on Wednesday. KLISHIN, who is head of the General Staff's conscription department, described young Russian men called up for national military service as unhealthy, unpatriotic, and likely to try to dodge the draft. He said that 37,000 men had dodged last autumn's conscription, compared with 44,000 in the whole of 1993 and 443 in 1985, during the Soviet era. "The situation has to be qualified as critical, as legal nihilism," he told Krasnaya Zvezda.

KLISHIN said that one in three draft age men was deemed unfit for service last year compared to one in five at the end of the Soviet era. The main illnesses cited for releasing Russians from army service were related to internal organs, psychological disorders, and problems with the nervous system. In addition, the number of young men with syphilis was 11 times higher than in 1985.

The general said he had also found that those called up for service now were less well educated. Many did not believe in the conscription system and were not interested in or knowledgeable about Russia's history, literature, or military studies. "Among the youngsters called

Today's News Highlights

Russia

Import Tariffs to Remain, Not Rise

Alcohol Regulations Take Effect

Delta Cancels Frankfurt-Russia

Byukovo Aviation Certified Audit

European Republics

Moldovan President Sworn In

Eurotech Foam at Chernobyl

Transcaucasia & Central Asia

Murder Suspects Arrested

Kazakhstan's Privatization

Politics-Economics-Business

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Thursday

January 16, 1997

Intercon's Daily

Thursday Tidbit

invited the Russian politician. According to a US Embassy spokesman in Moscow, LEBED received an invitation "from within Congress" to attend the ceremony as a private individual. The Joint Congressional Inaugural Committee, which controls tickets to the event, denies issuing a ticket to LEBED, reported the Associated Press. However, it is possible that LEBED received a congressional ticket, as each senator is granted 400 tickets and member of the House 200 tickets. It is unclear whether LEBED, currently in Germany, plans to attend.

Economy

Ruble = 5,606/$1.00 (NY rate)

Ruble = 5,602/$1.00 (CB rate)

Ruble = 5,595|5,609/$1.00 (buy|sell rates)

Import Tariffs to Remain, Not Rise

· Russian Trade Minister Oleg DAVYDOV said on Tuesday that Moscow will use import tariffs to protect its domestic industries during economic reforms, reported Reuters, citing Interfax. "During the period of structural change, different sectors of industry will be protected from overseas competition through rises in import tariffs on the goods they produce," said DAVYDOV. He mentioned aviation as one sector in need of protection, but did not cite imported food, which comprises up to one half of the Russian food market. Meanwhile, DAVYDOV also pointed out that excessive protection of Russia's automobile industry has contributed to severe production declines at some of Russia's major car manufacturers.

However, DAVYDOV did say that the average tariff rate, 14-15 percent, would not rise, and that the government hopes to lower those rates by 20 percent by 2000 and 30 percent by 2005.

Dagestan Caspian Port to be Revamped

· The Caspian Sea port of Makhachkala in the Russian republic of Dagestan will undergo major reconstruction, scheduled to start this spring. The Dagestan government took the decision to construct an oil tanker harbor, three mooring lines for freighters, and the appropriate infrastructure on Tuesday. After the renovations, the port will have an increased capacity as a transshipment base for Kazakh and Azeri oil and cargo from Iran. Makhachkala is Russia's only Caspian port which does not freeze.

Despite the demise of

the centralized Communist system,

miscalculations and misdeeds of the

Russian bureaucracy are alive and well. The

Russian government's recent emphasis on tax

collection to boost the federal budget notwithstanding,

the State Tax Service is as underfunded as any government agency and its workers as unpaid. According to Tuesday's Nezavisimaya Gazeta, the 1996 federal budget debt to the Service stands at 1.9 trillion rubles. Deputy chairman Vladimir YEVSTIGNEYEV told a group of Service regional branch heads that the Finance Ministry had virtually ignored a May 1996 presidential decree on raising the wages of Service employees by 30 percent. The situation is leading to expressions of discontent,

he said, pointing out that a tax department inYaro-

slavl Oblast has launched an indefinite strike.

However, If no one is collecting taxes, how

will the government get the money to

pay the collectors' wages?

up there is a devaluation of the significance of military service and an erosion of patriotic values and ideals," KLISHIN said.

As a result, many young Russians now model themselves after America's Rambo, rather than Russian or Soviet military figures, he said. "It is not by chance that fighting heroes from Western cinema serve as models for many and that only a few can remember the Russian warriors who won victories in the name of the defense of the Fatherland. Even fewer want to be like these heroes."

KLISHIN said that a major reform of the conscription system is needed, but noted the shortage of funds, estimating that his department had received only 25 percent of the money needed for the autumn call-up. The government of President Boris YELTSIN has promised a major military reform effort, including a reduction of forces and the creation of a professional army by 2005, but it has so far exhibited a lack of funds and political will to implement it.

Who Invited Lebed?

· Although Russia's most ambitious politician Aleksandr LEBED claimed to have received an invitation from President CLINTON to Monday's US presidential inauguration, it is unclear what organization

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The Dagestan government also plans to launch a $207 million airport reconstruction project. The project will include the construction of a new three-kilometer runway, able to accept larger airplanes such as the Boeing-747 and Tu-204.

Business

MiG Modernization Brings in Funds

· Russia's Sokol aircraft plant in Nizhny Novgorod will modernize more than 62 of India's Soviet MiG-21 fighter planes, bringing in $300 million for the government, reported RIA Novosti today. The project will take five years and extend the service life of each aircraft by 10 years. The defense ministries of Vietnam, Egypt, and other states with similar aircraft may also participate in the modernization program.

Alcohol Regulations Take Effect

· Regulations requiring licenses for the production or import of alcohol went into effect in 66 Russian regions on January 1, reported RIA Novosti. The government is attempting to both cut illegal production and import, and increase its tax revenues. Officials estimate that the government loses 40 trillion rubles ($7.2 billion) each year on wine alone. Inspection teams composed of members of the State Tax Service, the Tax Police, and the Interior Ministry will monitor the trade to ensure compliance.

Delta to End Frankfurt-Russian Routes

· US Delta Air Lines Inc. will cancel its service from Frankfurt to Moscow and St. Petersburg as part of an overhaul of its trans-Atlantic and intra-European routes, reported the St. Petersburg Times. Service to Moscow will stop after April 7, but no date was given for the end to the St. Petersburg flight. Flights from Frankfurt to several other cities will be ended as well. More than 800 staff will be laid off as a result of the restructuring, including an unspecified number in Russia. ALLEN added that services to St. Petersburg may be restored in the future, using Delta's partnerships with other airlines. However, there are as yet no plans in place.

Bykovo Aviation Receives Certification

· The Bykovo Aviation Services Company (BASCO) became Russia's first company to be certified as a provider of service and maintenance for aircraft and engines, including the latest domestic

aircraft modifications. This week BASCO received two certificates - one from the Federal Aviation Service of Russia, the other from the Avia Register of the Interstate Aviation committee, whose joint certification commission had spent 12 months evaluating BASCO's compliance with certification standards. The company made the necessary upgrades to qualify for European and American certification standards. This enables BASCO to offer its aircraft, engine, and avionics maintenance and overhaul services to a larger number of foreign airlines. Currently, BASCO maintains close ties to more than 200 airlines and 300 manufacturers and suppliers of aviation equipment, BASCO general director Vladimir CHERNYAYEV told Itar-Tass.

BASCO, located some 50 km. southeast of Moscow, started out as a small workshop repairing early wooden-frame aircraft 65 years ago, and has evolved into a modern facility with over 2,500 workers.

European Republics

Moldovan President Sworn In

· Newly-elected Moldovan President Petru LUCINSCHI was sworn in on Wednesday, promising to do away with crime and poverty and to further reconciliation with the separatist Dnestr region, reported Reuters. LUCINSCHI campaigned on promises of closer relations with Russia, but calls implementation of the pullout of Russian troops from the Dnestr region an "important factor" in resolution of that conflict and the stability of the country.

Meanwhile, LUCINSCHI has nominated chairman of the State Audit Chamber Ion CHUBUK to the post of prime minister, reported Itar-Tass. CHUBUK, born into a peasant family, holds a doctorate in economics. He has worked in the agro-industrial complex and party structures. He was deputy chairman of Soviet Moldova's State Planning Committee and deputy minister of economics after independence. Parliament must approve the new premier within two weeks. Many politicians regard the new cabinet as temporary because parliamentary elections are due to be held in Moldova at the beginning of next year.

Eurotech to Apply Foam at Chernobyl

· Californiabased Eurotech Ltd. announced today that it will begin applying its radiation resistant foam

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to Ukraine's Chernobyl Nuclear Power Plant's damaged Reactor No. 4 in early February, according to a company press release. The foam, developed at the Moscowbased Kurchatov Institute, acts as a radioactive dust suppressant in nuclear processing shut down; containment of both low and highlevel radiating waste; and transportation, storage, and burial of radioactive water. The equipment for the mixing, pumping, and spraying of the foam is near completion at the Chimmash design and manufacturing facility in the Urals. Plans call for the foaming of certain sections of the damaged reactor building, in order to determine its ability to prevent the air- and water-borne escape of radioactive debris.

Transcaucasia and Central Asia

Suspects Arrested in Journalist's Murder

· Kazakh authorities have arrested three suspects in the murder of American journalist Christopher GEHRING in Almaty Wednesday, reported Itar-Tass. During the arrest a computer, answering machine and personal effects of the victim were confiscated, and the men confessed to committing the murder. They were reportedly acquaintances of GEHRING.

In a news conference today, deputy chairman of the State Investigation Committee Mararkalu NUKENOV said that serious crime rose some 50 percent in Kazakhstan last year, and accounted from 60 percent of all crimes committed in 1996.

Kazakhstan Steps up Privatization

· The Kazakh government is intensifying its privatization effort this month with a number of tenders for key gold and oil enterprises. Final negotiations on the development of the Vasilovskoye gold project in northern Kazakhstan will be completed by the end of this moth, according to RFE/RL. In June, Intercon reported that the Kazakhstan government conditionally granted the right to develop the Vasilkovskoye gold deposit to a mining consortium composed of Canada's Teck Corp., the Londonlisted Bakyrchik

Gold Plc, and Canada's First Dynasty Mines (UK) Ltd. The group had until July 1, 1996 to finalize negotiations on the Vasilkovskoye license, or the Kazakh government reserves the right to recommence negotiations with other tender participants. However, British Diamond Resources Company representative Robert FRIEDLAND said that his firm has already held detailed negotiations with the Kazakh government on the purchase of the mine. The Vasilkovskoye deposit has estimated reserves of nearly 14 million ounces of gold, which is worth about $5 billion at today's prices.

The Kazakh government also plans to privatize two oil refineries this month, which account for some 35 percent of the country's oil refining capacity. Intercon reported last week that a number of domestic and international firms will participate in the tender of the Pavlodar oil refinery in northern Kazakhstan. The Aqtobe refinery, near the Tengiz oilfields is also scheduled for tender. Only US Exxon Corp. has officially registered to bid, but Houston-based Texaco has reportedly expressed an interest in the project. The tender for Aqtobe is scheduled to close on January 24th.

Kazakhstan Goldfield Ships First Gold

· Canadian controlled Kazakhstan Goldfield Corp. (KGFC) announced on Wednesday the completion of its first gold sale and shipment from its mines in north-central Kazakhstan. By the end of this week, some 3,500 ounces of gold will be shipped to London, while another 7,500 ounces are currently being processed at the Balkash smelter in eastern Kazakhstan. KGFC president Charles PITCHER told Reuters that the firm has also completed a $1.5 million short term production loan facility with US-based metals financier Gerald Metals Inc. According to PITCHER, KGFC has also increased its operations at the Bestobe mine, and expects to produce some 4,500 ounces per month by March. In March 1996, KGFC acquired the gold mines of the Kazakh state owned mining enterprise Kazakhaltyn.

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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