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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, February 10, 1997

Russian Federation


Yeltsin to Chair Security Council Mtg.

· Russian President Boris Yeltsin will personally preside over the next meeting of the Security Council, scheduled for late February or early March, said the Kremlin press office today. YELTSIN's direct participation in the meetings of the Security Council and other policy bodies has been exceedingly rare in the last six months or so because of his poor health.

Today's announcement came after a 45-minute meeting between Yeltsin and Security Council secretary Ivan Rybkin at the president's Gorki-9 dacha. The men discussed a tentative agenda of the upcoming Security Council meeting, agreeing that it should focus on the political and economic situation in Chechnya. In addition, YELTSIN asked RYBKIN to represent him at the inauguration of Chechen president Aslan MASKHADOV on February 12.

Korzhakov Takes Tula Duma Seat

· Preliminary results from Sunday's by-election in Tula Oblast indicate that former presidential bodyguard Aleksandr Korzhakov has won a seat in the State Duma, which was vacated by Aleksandr Lebed. Korzhakov won more than 26 percent of the vote, followed by a former Duma deputy from Tula Eduard PASHCHENKO (17 percent), former world chess champion (16 percent), and a sports club president, Nikolai NOVIKOV, who won 12 percent of the vote, despite campaigning from jail where he is incarcerated for alleged extortion.

The election was marked by accusations of vote-buying and other questionable tactics, including the distribution of vodka to prospective voters by KORZHAKOV, and the race reportedly had a circus atmosphere.

The main practical result of the election is parliamentary immunity for KORZHAKOV, who has been accused of corruption. The losers in this situation are President Boris YELTSIN, KORZHAKOV's former boss and current rival, and members of the government and presidential administration, particularly Anatoly CHUBAIS. NTV commentator Yevgeny KISELYOV called the election results "a slap in the face to top authorities."

KORZHAKOV has been threatening for months to release certain compromising materials (kompromats) that he collected as presidential bodyguards chief, and his new immunity may prompt him to act. KISELYOV predicted that if KORZHAKOV received the Tula mandate, "Then the compromising materials with which he has so far only threatened everybody will probably start to be published...and this will lead to a new spiral of political instability," he was quoted by Reuters as saying.

Russia State TV Chief Resigns

· Eduard Sagalayev, chairman of the All-Russia State Radio and Television Broadcasting Company (RTR), tendered his resignation to President Boris YELTSIN, reported told Itar-Tass. Novaya Gazeta newspaper last week published a letter, signed by some of the company's former and current directors, which accused SAGALAYEV of financial machinations and establishing a personal dictatorship at the state TV and radio company. Sagalayev stated that he was not involved in any shady transactions and in

Today's News Highlights


IMF Releases Two Tranches

Gore-Chernomyrding Mtg. Highlights: MOC on Veterinary Issues, Potato Deal; OPIC

Intercon Special Report: An Eye on Crime & Government

ARCO-Lukoil Sign JV Papers

Duma Votes on FEZs

VimpelCom to Trade on RTS

National Media in Russia




February 10, 1997

Intercon's Daily

tended to prove it through a lawsuit. However, he feels that the press allegations hamper the normal work of RTR and so he decided to resign.

Sagalayev has suggested that Nikolai Svanidze, RTR deputy chairman and the host of the news analysis program Zerkalo, as his successor. Sagalayev also said that he intends to return to the TV6 Moscow television network, where he was president prior to his RTR appointment.


Ruble = 5,636/$1.00 (NY rate)

Ruble = 5,644.5/$1.00 (CB rate)

Ruble = 5,640|5,649/$1.00 (buy|sell rates)

IMF Releases $640 Million to Moscow

· The executive directors of the International Monetary Fund (IMF) decided on Friday to release two tranches, totaling $647.2 million, of a $10 billion loan to Russia. The new funds represent one tranche that was withheld in the last quarter of last year and one regular monthly tranche.

An IMF spokesman said that Russia had met its financial, budget, and credit targets, and improved tax collection in December 1996. However, Russian official figures show that tax arrears rose to 128 trillion rubles (about $23 billion) by the start of this year, double the level at the beginning of 1996.

Gore-Chernomyrdin Mtg. Highlights

· During the eighth session of the US-Russian commission on economic and technological cooperation in Washington, US Vice-President Al GORE and Russian Prime Minister Viktor Chernomyrdin signed some 30 documents, completing another successful biannual session.

One key agreement was a memorandum of cooperation (MOC) on technical cooperation on veterinary issues, signed Friday as part of the US-Russian Joint Agribusiness Committee. According to a statement

from Gore's office, the memorandum is expected to improve conditions for bilateral trade in live animals and animal products. The agreement will also provide a vehicle for technical experts to meet on a regular basis to discuss and resolve problems associated with veterinary barriers or impediments to agricultural trade.

Gore expresses his support for the US poultry industry's initiative to heighten cooperation with its Russian counterpart industry by forming a partnership with a suitable Russian poultry production facility and investing several million dollars in voluntary industry contributions.

He also noted progress made in the formation of a joint venture for high technology seed potato propagation. The venture, between Hartel Corporation of Ft. Atkinson, Wisc. and GREENCOMPLEX of Moscow, will include harvesting, processing and marketing operations, as well as business management training, technology transfer and equipment sales. The value of the project is estimated at between $11 million and $18 million.

The GORE-CHERNOMYRDIN commission also formed a new Working Group on Research, Education, and Extension which will focus on the development of a system for the exchange of printed scientific material, electronic communications, and information sharing; encouragement of defense and energy conversion programs in agriculture; and creation of a data matrix on the location and capabilities of US and Russian research, education, and extension institutes, academics, and universities.

Overseas Private Investment Corporation (OPIC) President Ruth HARKIN on Friday signed five agreements on OPIC projects for Russia, in conjunction with the GORE-CHERNOMYRDIN Commission The first document was a business protocol with Sakhalin Energy Investment Co., Ltd. for $116 million in project financing for a Russian Far East oil development project, said an OPIC press release. Sakhalin Energy is 30 percent owned by Houston-based Marathon Oil and 20 percent by New Orleans-based McDermott International, Inc. HARKIN also signed a protocol with the Russian State Committee for the Support and Development of Small Business Investment in Russia. OPIC already supports nearly two dozen American small business projects in Russia with more than $320 million in project finance and political risk insurance.

OPIC also entered two insurance contracts worth more than $70 million for defense conversion projects. This includes nearly $6 million in political risk insurance to Alexandria, Virginia-based MCT

When you need to know it as it happens




February 10, 1997

Intercon's Daily

Intercon Special Feature

Insider's Outlook:

An Eye on Crime and Government

by Oleg D. Kalugin

ernment officials for involvement in economic crime and corruption. So far the visible results of the investigation have been meager. True, a former prosecutor general of the country has been languishing behind bars without trial since 1994, and charges of alleged bribery have been aired against the former mayor of St. Petersburg Anatoly SOBCHAK. But it is common knowledge that the prosecutors' offices turn a blind eye to crimes involving large economic entities and big shots. Fear of retribution and—again—money, keeps them gagged. No wonder not a single high profile crime has been solved; the louder the offense, the less likely the investigation will bear fruit. The impunity of criminals has shattered the concept of the inevitability of punishment. The law enforcement system of the country is paralyzed.

But so is the country's top leadership, despite their assurances to the contrary. YELTSIN's stern verbal warnings, when he is capable of uttering them, are simply ignored, and his signed decrees fare no better. One Russian paper called the ailing YELTSIN "a suitcase without a handle. It's a pity to throw it away, but there is no more strength to carry it." In the meantime, the power vacuum is being filled with a close circle of nouveaux riches—oil tycoons and nickel barons, bankers and financiers who made fortunes on quasi-privatization and under-the-counter ties with government officials.

"Developments in Russia could take an ominous turn," Prime Minister CHERNOMYRDIN warned recently, referring to the ostensibly hostile reaction of the Russian public toward NATO's planned eastward expansion.

But it is not NATO that the Kremlin rulers should fear. As new opinion polls indicate, more than one-third of ordinary Russians are now ready to go into the streets and protest their government's economic and social policies and the rising tide of crime, while eight percent said they would resort to force of arms to attain their goals.

Falling in with official Moscow demagogery and focusing too much attention on palace intrigues, one may lose sight of the real storm gathering offstage. The hurt, humiliated, and utterly unhappy people do not accept the criminalized and perverted Russian version of democracy.

A criminal state has been evolving out of the ruins of the former Soviet Empire. This is the near unanimous conclusion of most astute and disinterested political observers within Russia and abroad. The argument contains a thin line of nuances—the degree of criminality, rather than the substance—whether Russia is totally lost to crime syndicates or is only moving rapidly in that direction.

One can find explanation and solace in Russia's recent past. Was not the Communist dictatorship criminal by nature? And what can one expect from a country where upheaval of historic magnitude is underway, where the state monopoly on practically everything is being dismantled and huge chunks of government property change hands daily?

Indeed, from the start of YELTSIN's economic reforms the most criminally affected area of the economy proved to be Russia's vast natural resources, particularly oil. In 1996, 22 businessmen engaged in the oil sector fell victim to contract killers. Last January, seven more bullet-ridden corpses were found in an oil-producing town in Siberia.

But it's the Russian capital that has turned, in the words of Mayor Yuri LUZHKOV, into "the hub of economic crime with its free flow of black cash and numerous fraudulent affairs with bank loans." Last year, 74 contract murders were committed in Moscow alone, 15 percent of the national total. Just a few days ago, a car belonging to the deputy Finance Minister was blown into pieces in front of his ministry.

While Moscow, like any other major metropolis, may attract the moguls of the underworld, the principal source and hotbed of crime is government structures, both federal and local. Most federal employees earn less than $200 a month, barely enough to make ends meet. As a result, graft holds sway at all levels of government—from traffic cops to top Kremlin officials.

According to FSB director Nikolai KOVALYOV, his organization is investigating 550 highly-placed gov

When you need to know it as it happens




February 10, 1997

Intercon's Daily

Investors for its US-Russian telecommunications joint venture. The project will use facilities and services that once supported the Soviet military for a commercial GSM cellular telephone network. OPIC will also provide $65 million in political risk insurance to New York-based Mir Pharmaceuticals' effort to organize medicine production at Russia's Microbiological Research Institute, formerly a defense plant.

Two financial service projects complete the list. OPIC will provide $100 million for a $200 million revolving credit loan facility through Citibank and political risk insurance for T/O Citibank in Moscow.

ARCO-Lukoil Sign Final JV Papers

· In a ceremony attended by Vice President Al Gore and Russian Prime Minister Viktor Chernomyrdin on Friday, the chief executives of Los Angeles-based ARCO and Russia's largest oil company Lukoil today signed documents formalizing an East-West joint venture to invest in oil and gas opportunities in Russia and other countries, said an ARCO press release. The first investment by the joint venture, called LUKARCO, B.V., will be in the Caspian Pipeline Consortium, a multi-party effort to build a 900_mile pipeline from the Tengiz oilfield in Kazakhstan to the Black Sea, via Russia. LUKARCO will hold a 12.5 percent interest in the CPC project.

The documents signed today by Vagit Alekperov of Lukoil and Mike R. Bowlin of ARCO include shareholders and financing agreements for LUKARCO projects. Lukoil will own a 54 percent interest in the joint venture, ARCO—46 percent. Investment in various projects could total $5 billion over 18 years, with ARCO providing most of the financing. In addition to the joint venture involvement, ARCO owns eight percent of Lukoil's total equity—the result of convertible bonds purchased by ARCO in public offerings in 1995 and 1996.

Duma Passes Law on FEZs

· The Russian State Duma has passed a law on free economic zones (FEZs) in Russia on its second

reading, reported Friday's OMRI, citing Kommersant-Daily. The law allows the creation of six types of FEZs, as opposed to only two types mentioned in the first draft adopted by the Duma in June 1996. They include production and trade customs zones, special economic zones within regional borders, zones for technological research and development, zones for international provision of services, off-shore banking centers, and tourist and recreational zones. The law also introduces tax benefits for companies and firms operating in FEZs. Of 19 FEZs created in Russia so far, only the Yantar zone in Kaliningrad Oblast has begun operations.


VimpelCom to Trade on Russian Market

· Russian private telecommunications company VimpelCom announced today that commencing on or about February 13, shares of the company's common stock will be authorized to trade on the Russian Trading System (RTS) market in Moscow, under the symbol VIPM, said a company press release. The RTS is an on-line, screen-based trading system used by brokers in Moscow and throughout the Russian Federation.

VimpelCom, which began full-scale operations in 1994, became the first and only company to list on the New York Stock Exchange in November 1996. VimpelCom is now the largest provider of cellular telecommunications in Russia, marketing its services under the Bee Line brand name.

National Media Offers TV to Moscow

· Philadelphia-based National Media Corporation today announced that it has begun transactional television programming on TV6 in Russia, reaching approximately 12 million television households in Moscow and the surrounding region, said a company press release. National Media transactional television programming will be available seven days a week to approximately 20 percent of Russia's total television household population.

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

Rebecca Martin, Charles Lawrence, Contributing Editors

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When you need to know it as it happens