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

Wednesday, February 12, 1997

Russian Federation

Politics

War of Words Against NATO Escalates

· The outpouring of frustration by Russian officials over NATO's planned eastward expansion continued this week with new threats and accusations from some figures as well as appeals for a calmer approach by others. The most controversial statements came from Russian Security Council secretary Ivan RYBKIN.

In an apparent sign of hostility against NATO's planned expansion, RYBKIN suggested that Russia should be prepared to abandon its policy of not using nuclear weapons against an attack by conventional forces. "All people should know that in the event of a direct challenge, our response will be full-fledged, and we are to choose the means...including nuclear weapons," he said in an interview with Tuesday's Rossiiskaya Gazeta. "Of course, we are not speaking of a preventative nuclear strike, but if an aggressor starts a war against us using conventional weapons, we might respond using nuclear ones."

Rybkin's remarks were immediately disavowed by presidential spokesman Sergei YASTRZHEMBSKY on Tuesday. "Statements concerning strategic foreign policy positions may only be made by the president, the prime minister, or the foreign minister, or persons duly authorized to do so. I know for certain that Rybkin was not given such authority," he is quoted by today's Kommersant Daily as saying.

Speaking at a press conference today, however, YASTRZHEMBSKY accused NATO Secretary General Javier Solana of seeking to prevent the reintegration of former Soviet republics. He said that SOLANA, who is currently on a tour of Moldova, Georgia, Armenia, and Azerbaijan, has "an unde

clared, behind-the-scenes" purpose, reported Interfax. "The West as a whole, and the leadership of NATO in particular, is opposed to any form of integration between the newly independent states," the news agency quoted him as saying.

President Boris Yeltsin's top foreign policy adviser Dmitri Ryurikov also expressed concern about the NATO leader's intentions, saying that Solana's tour was aimed at showing NATO's tough line on the expansion issue and was also a signal to the four nations that NATO's door was open to them.

For their part, the leaders of Russian democratic forces have called for a treaty with NATO and have sharply criticized the anti-NATO hysteria, reported Itar-Tass on Tuesday. Sergei FILATOV, chairman of the coalition of a liberal and center-right parties, (including Russia's Democratic Choice, Democratic Russia, and other groups) said coalition representatives believed that problems in Russian-NATO relations were often used for propaganda purposes "to return to the times of the Cold War." The participants called for a political agreement between Russia and NATO to be worked out.

Meanwhile, NATO and US officials reiterated their commitment to move forward with eastern expansion, despite Russian objections. Speaking to the Georgian parliament in Tblisi today, NATO Secretary General Solana said that NATO wanted "enhanced cooperation" with Moscow and pledged that

Today's News Highlights

Russia

1996 Aluminum and Oil Exports

Greenwich Signs with Transaero

Menatep Personnel Reshuffle

European Republics

Lukashenko Angry Over Inflation

Belarus Opposition Attacked

Transcaucasia & Central Asia

Transneft Explains Oil Transport

Samsung & Kazakh Copper Co.

Turkmen Eco. Statistics

Politics-Economics-Business

Page

Wednesday

February 12, 1997

Intercon's Daily

it would not be left out of a new European security arrangement. He noted, however, that "there still remain many misconceptions and stereotypes in Russia's thinking about NATO," Reuters quoted him as saying.

US Secretary of State Madeleine ALBRIGHT told Congress on Monday that NATO will go ahead as planned with several new offers of membership to former Warsaw Pact nations when its leaders meet in Madrid during July. "We must create a new and larger NATO. It is not in our interest to delay or derail a process that is helping to build a reunited Europe," she told the House International Relations Committee. Discussions on NATO enlargement will be the focus of consultations when ALBRIGHT visits Moscow on February 20-21, as will efforts to include Russia in Alliance operations.

Orthodox Church to Enter Politics?

· The Russian Orthodox Church apparently marked its intention to affect the political process in Russia on Sunday when it presided over the creation of the Orthodox Russia public movement on Sunday. Speaking at the founding conference of the new movement in Moscow, Russian Patriarch Aleksei II told participants: "The Church welcomes the public movement which aims to pool efforts of Orthodox believers in the service of the Church and society," reported Itar-Tass. The new movement aims to consolidate Russian society on the basis of Christian ideals of peace and accord and orthodox morals, said the news agency.

"We forbade clergymen of our Church from participating in political life, since the Church should be open for all people, irrespective of their views and ideas," said the Patriarch. "However, orthodox laymen may defend the interests of the Church." He estimated that 80 percent of Russian population are "deeply-rooted orthodox people." The movement reportedly unites representatives of Orthodox public associations, mass media, scientists, cultural figures, businessmen, servicemen, and employees of law enforcement agencies, said Itar-Tass.

The most interesting aspect of this new movement's founding conference was the preponderance of military men in attendance. According to Tuesday's Kommersant-Daily, the number of representatives

from the military and interior ministry troops "all but exceeded the number of clergymen." Moreover, Defense Minister Igor RODIONOV sent a greeting to the conference, which was read out by General Aleksandr CHERKASOV, the deputy chairman of the Defense Ministry main directorate for indoctrination. "The spiritual core of the nation is being eroded, the Church and the army alone are capable of saving Russia from a military and spiritual expansion," said RODIONOV's message.

Economy

Ruble = 5,640/$1.00 (NY rate)

Ruble = 5,650/$1.00 (CB rate)

Ruble = 5,645|5,655/$1.00 (buy|sell rates)

Russia Dependent on Imported Goods

· Russian Deputy Economy Minister Ivan Starikov told a government meeting that Russia depends on imports for 80 percent of its consumer goods, reported the Associated Press (AP) on Tuesday. Starikov said the country must lessen its dependence on foreign goods and attract investment to develop its own producers. Some officials at the meeting said Russia should impose measures to protect domestic industries or increase taxes on foreign goods.

Aluminum and Oil Exports in 1996

· Russian State Statistics Committee (Goskomstat) figures put primary aluminum exports outside the Commonwealth of Independent States (CIS) at 2.62 million tons in 1996, up from 2.25 million tons in 1995, reported Interfax. Russian exports to non-CIS countries of primary nickel rose to 166,900 tons in 1996 from 152,500 tons in 1995.

Russian crude oil exports outside the CIS rose to 105.03 million tons in 1996, an increase of 9.2 percent from 96.21 million tons in 1995, said Interfax. Russia's non-CIS exports of oil products rose to 54.88 million tons in 1996 from 43.55 million in 1995. Goskomstat figures showed average earnings on oil exported outside the CIS in 1996 rose to $131.9 per ton from $108.2 in 1995.

Russian natural gas exports outside the CIS in 1996 rose to 128 billion cubic meters (bcm) from 121.88 in 1995. Gas exports to all destinations also rose last year to 196.45 bcm from 192.19 bcm in 1995.

When you need to know it as it happens

Politics-Economics-Business

Page

Wednesday

February 12, 1997

Intercon's Daily

Business

TDA Grant to Satellite Group

· The US Trade and Development Agency (TDA) announced last week a $114,000 grant to Russia's premier satellite and missile development group Mashinostroenia (NPOM) for a feasibility study of a facility to build solar electricity equipment, said a White House press release. California-based Global Photovoltaic Specialists, Inc. will match the grant, and perform the study.

NPOM is attempting to convert its defense-oriented business to commercial activity and plans to market the equipment worldwide. US export potential for the project is estimated at $63 million.

Greenwich Signs with Transaero

· Greenwich Air Services has signed a $7 million one-year contract with Moscow-based private airline Transaero for repair and overhaul of aircraft engines, said a Greenwich press release. Greenwich Caledonian Limited, a wholly-owned subsidiary of Greenwich Air, signed an agreement for the maintenance of five CF6_50 engines which power DC 10_30 aircraft.

Transaero is a privately-owned firm founded in 1991. It operates a modern fleet of aircraft within Russia and internationally. Headquartered in Miami, Fla., Greenwich Air Services Inc. is the world's largest independent gas turbine engine repair and overhaul company.

Soviet Spy Pictures to be Posted

· Formerly classified photographs taken by Russian military satelites will be posted on the internet under a deal announced Wednesday involving US Microsoft Corp. and Aerial Images and Russian space association Sovinformsputnik, reported Dow Jones. Terms of the deal were not announced. A Sovinformsputnik official said the pictures depict over two million square kilometers, or about one percent of the earth's surface, plus all cities with a population of over 500,000.

Photos of cities such as Los Angeles, Washington, San Francisco, Rome, and London will appear on the Internet within nine months. They will be available free of charge, but project participants will get a share of profits generated by any commercial use.

Management Reshuffle at Menatep

· Russia's Menatep financial group, which includes one of the country's largest commercial banks, is restructuring its management in line with the 1995 creation of Rosprom, the industrial branch of the group. A group spokeswoman told Interfax on Tuesday that Menatep chief executive Sergei MONAKHOV has resigned to join Rosprom and Menatep bank president Aleksandr ZURABOV has become acting chief executive.

In addition, Yuri MILNER, former head of investment branch Alliance-Menatep, has been named the bank's deputy chief executive and head of its investment department. Aleksandr GOLUBOVICH, the bank's former deputy chief executive and former head of the investment department, will concentrate on his work as a strategic planner at Rosprom.

European Republics

Lukashenko Angry Over High Inflation

· Belarus President Aleksandr LUKASHENKO threatened his government with dismissal on Tuesday unless the economy begins to show improvement over the inflation figures released this week. The president had decreed that inflation in 1997 should average two percent a month, but acting Prime Minister Sergei LING reported that January inflation stood at 13.3 percent, reported Reuters. "I am hearing for the first time that you have not fulfilled the program. You have failed me," thundered LUKASHENKO during a televised meeting. Belarus has failed to implement market reforms, including the introduction of realistic monetary policies, and as a result has been cut off by international lending institutions, such as the World Bank.

Belarus Opposition Leaders Attacked

· Two prominent opponents of Belarus President Aleksandr Lukashenko were subject to what appeared to be politically motivated attacks on Monday, reported United Press International (UPI). Anatoly Lebedko, a member of the parliament dissolved by Lukashenko in November 1996, was beaten up by two strangers near his home after attending an opposition meeting Monday evening. Lebedko told Interfax that he was certain the attack was politically motivated because the assailants made no attempt to rob him of money and other personal belongings.

When you need to know it as it happens

Politics-Economics-Business

Page

Wednesday

February 12, 1997

Intercon's Daily

In a separate incident, an unidentified gunman fired at the house of Igor Germanchuk, editor-in-chief of the newspaper Svoboda, in a Minsk suburb. It was "an act of political revenge" to intimidate the editor of an opposition publication, said Germanchuk, who was not home at the time of the attack. In both cases, police failed to find those responsible.

Deere/Belarus Harvester JV

· The Minsk tractor plant will build John Deere-990 cotton harvesters through a joint venture deal with the US company, reported Interfax on Monday. Output at the plant could reach 2,000 units a year, thanks to demand from countries outside the CIS. The venture partners declined to give any details on the deal until it is finalized.

The Deere model is compatible with the Belarussian plant's MTZ_80Kh 90_horsepower tractor, 575 of which the plant sold in Central Asia last year. The Deere_990 was tested in southern Kazakhstan in September by Uzbek certification authorities. The venture partners will only put the harvester into mass production if it is certified. They also plan to establish a service center in southern Kazakhstan.

South Caucasus & Central Asia

Transneft on Transport of Azeri Oil

· Russian state oil pipeline company Transneft has clarified its stance on the transport of Azeri oil from the Caspian Sea. The move comes after recent reports from Azeri state oil company SOCAR that Transneft had refused to transport its oil, and from the Chechen oil company that it might try to bypass Transneft and deal directly with Azerbaijan. Transneft deputy president Sergei TER-SARKISYANTS said last week that his company will abide by the January 1996 Russian-Azeri intergovernmental agreement to transport Caspian Sea oil from Baku to Novorossiisk, reported Monday's OMRI, citing the Turan news agency. He explained that transportation will begin only in May 1997, rather than during the first quarter of this year because of the situation in Chechnya.

Talks on the optimum schedule for Azeri Caspian oil exports were due to begin in Moscow on Monday between Transneft, SOCAR, and the Azerbaijan International Operating Company (AIOC).

Meanwhile, Russian deputy Fuel and Energy Minister Anatoly Shatalov said Monday that talks on the schedule and conditions of repairs on the Chechen section of the Baku-Novorossiisk oil pipeline are likely to restart next week, reported Itar-Tass. All technical documents for repairs are ready. Estimates put the cost of the repair work at $1.2 million.

Samsung Wins Kazakh Copper Tender

· South Korea's Samsung Co., Ltd. has won a tender for the right to buy the assets of Kazakhstan's Balkhasmys copper plant, reported Reuters. Under the tender, Samsung will invest around $700 million between 1997 and 2000—beginning with an $80 million investment this year—in modernizing metal production at the plant and developing its mining base. With these investments, Samsung plans to raise copper production to 200,000 tons by 2000, from output of 80,000 tons in 1996. Russian output was 125,000 tons in 1995.

The tender apparently annuls a September 1996 sale of the plant to a consortium of Swiss Glencore AG, US Phelps Dodge Corp. and Kazkommerzbank. At a board meeting in January, acting Balkhasmys director Erkinbek SHOMBINOV said the board approved Elkair SYZDYKOV as president of the plant.

Turkmenistan Economic Statistics

· The Turkmen State Statistics Committee has estimated that annual inflation reached 100.1 percent in 1996 and gross domestic product (GDP) totaled more than 6.6 billion manats (about $1.6 billion), reported Thursday's OMRI. In 1996, over 90 percent of industrial production came from state enterprises, but some 66 percent of retail trade is reportedly outside of state control. Some 4.4 million metric tons of oil and 35.2 billion cubic meters of gas were extracted in Turkmenistan last year.

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

available for non-profit institutions.

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.

When you need to know it as it happens

Politics-Economics-Business

Page