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

Tuesday, January 28, 1997

with retaking Grozny from the Russians in August 1996 as well as with negotiating a cease-fire and peace agreement with the Moscow government. Despite being a separatist military commander, MASKHADOV is seen as a pragmatist and was Moscow's favorite for the presidency.

According to presidential spokesman Sergei YASTRZHEMBSKY, President Boris YELTSIN greeted the news of the moderate MASKHADOV's victory with cautious optimism, but warned that Russia would never allow Chechnya to secede from the federation. All of the Chechen presidential candidates, including MASKHADOV, promised to seek full independence for the republic.

Anti-NATO Parliamentary Group Formed

· Russian State Duma deputy chairman Mikhail Gutseriyev told Itar-Tass today that he had helped found an `Anti-NATO' group within the parliament. "We must find ways to counteract the plans of the North Atlantic Alliance to move closer to our borders, because this is fraught with a serious threat to our national security and with a potential danger for stability on the European continent," he said.

The group includes legislators from several Duma factions and groups, which are united by a common desire to prevent NATO nuclear weapons from being placed near Russia's borders as well as the inclusion of East European countries in NATO, he said. GUTSERIYEV pointed out that in the last decade

Russian Federation

Politics

Another Yeltsin Kremlin Appearance

· Russian television today showed footage of President Boris YELTSIN spending a half-day working in the Kremlin. The president spent the morning meeting with Prime Minister Viktor Chernomyrdin and Commonwealth of Independent States (CIS) secretary Ivan KOROTCHENIYA in an apparent bid to quell growing concerns about his health. Presidential aides, however, said that YELTSIN was not ready to return to work full-time and he returned to his dacha outside Moscow after the meetings.

On Monday, Yeltsin canceled a trip to the Netherlands because his doctors say he is still too sick to fly, but his spokesman said he will definitely host French President Jacques Chirac as planned on Sunday, a day after his 66th birthday.

Meanwhile, the Clinton Administration seems concerned over Yeltsin's ability to travel to Washington in March for a proposed summit. White House spokesman Michael McCurry said today that no date or place had yet been set for the summit, and did not rule out postponing the meeting.

Maskhadov Wins Chechen Presidency

· Chechen rebel chief of staff Aslan MASKHADOV today declared victory in Monday's presidential elections, winning some 63 percent of the vote with 90 percent of ballots counted. The preliminary election results show Shamil Basayev in second place with 27 percent of the vote. Voter turnout is estimated at 60 percent. Final election results will be released next week by the Chechnya electoral commission.

A career military officer, Maskhadov left the Soviet army with the rank of colonel in 1992. He is credited

Today's News Highlights

Russia

Upper House to Discuss Budget

Production Down in 1996

Production Tables

Yasin on 1996 Economy

Radio Frequencies Illegally Used

Gusinsky Out of Most Bank

AT&T Service in Vladivostok

Canada Silver Co. in Magadan

Oneximbank Plans Bond Issue

Lukoil Deals with AvtoVAZ, Norsi

Politics-Economics-Business

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Tuesday

January 28, 1997

Intercon's Daily

Russia has made many important geopolitical concessions to the West, including the withdrawal of troops from several eastern European countries, the destruction of the Berlin Wall, among other steps to build up confidence and mutual understanding between Russia and the West. "Today, there is no need for recreating dividing barriers and increasing confrontation in Europe," he said.

"We shall use only means of parliamentary diplomacy and we hope the existing differences between Russia and NATO will be ironed out," Gutseriyev told Itar-Tass.

Federation Council Plans Budget Vote

· Russia's Federation Council (upper house of parliament) will debate the 1997 draft budget on February 11, reported Prime-Tass on Tuesday. The 1997 draft budget was passed by the State Duma in its fourth reading on January 24.

Economy

Ruble = 5,619.25/$1.00 (NY rate)

Ruble = 5,624/$1.00 (CB rate)

Ruble = 5,619|5,629/$1.00 (buy|sell rates)

Russian Production Down in 1996

· Final figures on the Russian economy in 1996 from the State Statistics Committee (Goskomstat) support Economics Minister YASIN's gloomy viewpoint. Rossiiskaya Gazeta, which published the figures on Saturday, points out that the continued decline of social and economic indicators in 1996 had defied expectations. Optimistic forecasts that the production slump would end last year proved wrong, as did many other positive predictions.

Russia's GDP in 1996 decreased by six percent from 1995 in real terms, totaling 2.256 trillion rubles in current prices.

Russian industrial production in 1996 was worth 1,274 trillion rubles, a five percent decrease from 1995 production.

Agricultural output in 1996 was worth 282 trillion rubles, a decline of seven percent from 1995. Total grain output was estimated at 761 million tons, which weighed 69.3 million tons after processing. Grain production increased nine percent over the 1995 level. The increase was attributed to an 11 percent rise in yields over the year before, while the area sown to grain fell by two percent from 1995. Production of other major crops fell in 1996, with potato and vegetable output dropping by three and five percent, respectively, in 1996. Also, production of meat and poultry fell by eight percent from 1995, output of milk by nine percent, and eggs by seven percent.

Economy Loses to Democracy in 1996

· Russian Economics Minister Yevgeny Yasin told a press conference today that 1996 was the worst year of Russia's market reform process, reported Prime-Tass. Yasin contended that the Russian economy "fell victim to Russian `democracy,'" suggesting that "a continuous chain of election campaigns" was one of the causes of the country's economic deterioration.

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Tuesday

January 28, 1997

Intercon's Daily

He pointed to the mounting national debt as an example of the declining financial position of the Russian economy. Specifically, "we have run into debts amounting to about $40 billion as regards the short-term government bonds, while the national debt service accounted for 5.8 percent of gross domestic product (GDP) in 1996."

Further, Yasin described the non-payments problem as the "scourge" of the Russian economy. As of the end of 1996, wage arrears reached 47.2 trillion rubles, compared with 20.8 trillion rubles at the beginning of that year, including 9.3 trillion rubles because of the lack of direct financing from budgets at all levels, up from 3.2 trillion rubles in 1995. Overdue pension payments, as of the end of 1996, had risen to 15.7 trillion rubles from 665 billion rubles in the beginning of the year, he said.

According to Yasin, the growth of these debts was the result of federal expenditures and the inadequate development of the credit market. He said that the 1996 ratio of credit inputs to GDP was only eight percent, compared with 15 percent in 1995. In developed countries, the ratio of credit inputs to GDP is about 90-110 percent, he said.

Radio Frequencies Illegally Used

· Ninety-five percent of radiotelephones and portable radio stations in Russia are used without appropriate authorization, Viktor Degtyaryov, deputy head of the radioelectronic security department of the Russian Interior Ministry, told reporters today, according to Itar-Tass. Degtyaryov said that Russian businessmen widely use devices for the anonymous collection of information (bugs) and foreign-made radiotelephones which operate on the frequencies of the Interior Ministry, the Federal Security Service, and the Defense Ministry. Over the past year, the radioelectronic security department registered more than 10,000 such cases, he said.

Business

Most Financial Group Restructures

· Well-known Russian businessman Vladimir Gusinsky has resigned from the position of president of Most Bank and director general of the Most Group to become director general of Media Most, Russia's first media conglomerate, Most Group said in a statement on Monday. Media Most will receive

blocks of shares in the media companies controlled by the Most Group including NTV independent television network, the NTV-Plus satellite network, the Ekho Moskvy radio station, and the Sem Dney (Seven Days) publishing house which publishes the Sem Dney and Segodnya newspapers and the Itogi magazine, said today's Nezavisimaya Gazeta.

The statement described Gusinsky's transfer as an "organizational measure in an attempt to secure public interests in the field of the mass media and to improve the financial performance of the above-mentioned companies," according to Itar-Tass. It also stated that it was necessary to decentralize the management of Most Bank and the Most Group in light of the expansion of the bank's range of activities and to improve efficiency. It also suggested that the media holding company may avert "a possible conflict of interests" between the media and some companies comprising the Most Group.

Whatever the reason, this move seems to indicate a reduction of the power of GUSINSKY within Most, but it is not clear who in the organization has ascended to his previous positions as head of the bank and financial group.

AT&T Direct Service in Vladivostok

· US AT&T announced on Monday the introduction of AT&T Direct Service in the Russian far eastern city of Vladivostok, which has a population of more than 800,000, reported M2 Communications. The service allows callers to telephone the US and more than 200 countries worldwide quickly, easily, and over a clear line, it said. AT&T has been providing its AT&T Direct Service in Moscow since 1992 and in St. Petersburg since 1995.

"Vladivostok recently emerged from a 60-year period of isolation as a closed military outpost," said Anne-Marie Schuitenmaker, AT&T consumer marketing manager for Russia. "The city has now become a crossroads for European, US, and Asian commerce and trade. In this environment, telecommunications plays a vital role."

AT&T Direct Service In-Russian allows callers to place collect calls to the US with the assistance of a Russian-speaking AT&T operator in the US. Collect calls can be made, as well as calls billed to an AT&T Calling Card.

When you need to know it as it happens

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Tuesday

January 28, 1997

Intercon's Daily

AT&T Direct Service, through an English-speaking operator, is designed for international travelers and expatriates in Vladivostok. It includes such features as access to US 800 numbers, directory assistance, teleconferencing, and messaging services.

Canada Silver Co. in Far East Deal

· Vancouver-based Silver Standard Resources Inc. announced on Monday that it has concluded formal agreements with its Russian partner GEOLOG on terms for the development of the Lunnoye and Arylach deposits in the far eastern Magadan Oblast, said a company press release. GEOLOG, a closed joint-stock company, holds two exploitation licenses totaling 60 square km, located approximately 660 km northeast of the city of Magadan.

Based on surface drilling and underground development, the Lunnoye deposit is estimated to contain 120 million ounces of silver and 500,000 ounces of gold and the Arylach deposit, located 30 kilometers north of the Lunnoye deposit, is estimated to contain 40 million ounces of silver.

Under the terms of the formal agreement, Silver Standard increased its interest to 50 percent of GEOLOG's issued and outstanding shares. Magadan Gold and Silver Company and Artel Poisk each own 25 percent of GEOLOG.

Silver Standard has agreed to provide all financing necessary for commercial production on the Lunnoye license held by GEOLOG. Silver Standard will be the operator and will receive certain fees, both as operator and for arranging financing. If the company is unable to provide financing, Silver Standard is required to sell its GEOLOG shares to the other shareholders at cost. Silver Standard also agreed to contribute up to $50,000 per month to GEOLOG's capital to pay basic operating costs.

Merrill Lynch to Manage Onexim. Issue

· Russia's Oneximbank has selected US Merrill Lynch International, a unit of Merrill Lynch & Co., as

sole manager for its first international bond issue, valued at $50 million, reported today's Wall Street Journal. It will be the first unsecured borrowing by a Russian company since 1917. The three-year, floating rate bonds will mature in January 2000. The offering will be fully underwritten by Merrill Lynch and will probably be marketed at three percentage points above the London Interbank Offered Rate (LIBOR), said an Oneximbank official. Details will be announced on Wednesday.

Oneximbank is Russia's third largest commercial bank in terms of assets and enjoys a close relationship with the Russian government.

Lukoil Signs AvtoVAZ, Norsi Oil Deals

· Russian oil conglomerate Lukoil has signed a cooperation agreement with major automaker AvtoVAZ, reported Interfax. The two companies plan to jointly produce and sell special all-terrain vehicles for oil and gas firms and locate Lukoil filling stations at AvtoVAZ's servicing centers. AvtoVAZ also agreed to use Lukoil fuel and lubricants in vehicles manufactured at its plant in Togliatti on the Volga.

Lukoil "already has around 50 percent of the Russian engine oil market and working with AvtoVAZ will allow us to boost this figure to 60-70 percent," Lukoil vice-president Vladislav BAZHENOV told Interfax.

In 1996, AvtoVAZ produced 673,000 cars and plans to increase output to 750,000 in 1997.

Lukoil's two refineries produced an estimated 19.3 million tons of oil products in 1996.

Lukoil also concluded a partnership deal last week with Nizhny Novgorod refining and distribution company Norsi Oil, said Interfax. This agreement builds on a December 1996 deal with the Norsi Oil's core refinery, under which Lukoil will deliver 600,000-650,000 tons of crude oil a month to the refinery. The new agreement calls for this figure to increase to 700,000-750,000 tons.

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Ellen Shapiro, Managing Editor

Rebecca Martin, Charles Lawrence, 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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