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, February 13, 1997

Russian Federation

Politics

Maskhadov Inaugurated in Chechnya

· Chechen President Aslan MASKHADOV took the oath of office on Wednesday in the former palace of culture for chemical industry workers, the only building left standing in Grozny that could accommodate the inauguration ceremony. MASKHADOV swore on the Koran to defend the independence of the Chechen state. Attending were Russian Security Council secretary Ivan RYBKIN, his predecessor in the post Aleksandr LEBED, and Organization for Security and Cooperation in Europe (OSCE) Chechnya mission head Tim GULDIMANN, who was recently expelled from the republic by former President Zelimkhan YANDARBIYEV.

Following the inauguration, LEBED flew to Paris. Although his agenda in France is not known, he clearly plans to use the trip to get the media attention denied to him at home. In an interview with the weekly Paris Match, published on Wednesday, he warned that Russians may take to the streets to protest the current regime and call for early elections, as occurred recently in Bulgaria. "They [the Bulgarians] exploded. The Russians will follow suit," he said.

Berezovsky to Sue Forbes Magazine for Libel

· Russian Security Council deputy secretary and Boris Berezovsky on Wednesday filed a libel suit against US Forbes magazine in the High Court in London. The former businessman charges that an article in the December 30, 1996 edition of Forbes defamed him by claiming he had mafia connections and linking him with the March 1995 contract-style killing of television personality Vladislav LISTYEV. Forbes described BEREZOVSKY as "a powerful gangland boss and the prime suspect in Russia's most famous murder investigation."

Suing together with BEREZOVSKY is Nikolai Glushkov, deputy director of Aeroflot Russian International Airlines, who formerly worked with BEREZOVSKY at the Logovaz car dealership. The same December Forbes article asserts that GLUSHKOV was convicted of a crime in 1982 under Article 89 of the Russian criminal code (theft of state property). The article goes on to ask: "Are GLUSHKOV and BEREZOVSKY in cahoots to siphon money from Aeroflot?" GLUSHKOV said that he has never been arrested for any crime and produced a Russian Interior Ministry statement to support his claim, said the Washington Post.

The two Russians have retained George CARMAN, Britain's most feared libel advocate, and the prominent libel firm, Peter Carter-Ruck and Partners, said the Financial Times. The suit was filed in Britain because under US libel law it is almost impossible for public figures to win a defamation case.

Anti-Anti-NATO Group Formed in Duma

· Russian State Duma deputies Sergei KovalYOv and Konstantin Borovoi held a press conference on Tuesday and announced that "NATO's eastward expansion meets the national interests of democratic Russia," reported Wednesday's Kommersant-Daily. They said they will work for the removal of Foreign Minister Yevgeny Primakov, for which purpose they have set up an Anti-Anti-NATO group. BOROVOI heads the Economic Freedom Party and KOVALYOV is Russia's former human rights commissioner.

Today's News Highlights

Russia

Yeltsin Meets with Kulikov

Upper House Passes Budget

Govt. Looks at Airplane Leasing

Israel Arms to India via Russia

Russia-Finland-UAE Trade

Chernogorskoye Stake Sold

Hewlett-Packard/Airton Deal

Transcaucasia & Central Asia

EBRD Loan for Uzbek Banking

Tajik Rebels Kill UN Hostage

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BOROVOI charged that when PRIMAKOV became foreign minister in January 1996, the country's foreign policy almost immediately began to resemble that of the Soviet Union: "The same `we shall use economic sanctions against Estonia' imperial ways or the idea for splitting up the world into spheres of influence." BOROVOI hopes that Primakov will resign and the post will be filled by "a person with Andrei Kozyrev's thinking."

KovalYOv supported his colleague's viewpoint. "The authority is trying to take over the banner of patriotism from the Communists. It is precisely for this reason that the aggressive-patriotic rhetoric is so popular," he is quoted by Kommersant-Daily as saying. KOVALYOV insisted that NATO expansion does not pose a threat to Russia "Those who want to join NATO today are simply afraid of us."

Defense Ministry officials commented to Kommersant-Daily that BOROVOI and KOVALYOV are ignorant of the real consequences of NATO's plans. "These guys do not realize what is going to happen in the event of NATO's enlargement. Military bases will be organized outside Russia's borders, intelligence centers and airfields will be deployed. We will have to reorient human and material resources, to additionally classify communication facilities, and so on. In a word, it's money and more money, and where to get it, nobody knows."

Yeltsin Sanctions Crime Crackdown by Kulikov

· Russian President Boris Yeltsin met today for about 40 minutes with Deputy Prime Minister and Interior Minister Anatoly Kulikov to discuss measures to improve the work of the Interior Ministry, the customs service, and the tax police. Following the meeting, KULIKOV told Interfax that YELTSIN had given him "carte blanche" to crack down on economic crime in Russia. He said he would undertake "very tough work within the framework of existing legislation to raise the effectiveness with the struggle with economic crime," according to Interfax.

On February 4, YELTSIN appointed KULIKOV to the post of deputy prime minister responsible for overseeing the tax police, customs service, and other agencies dealing with economic security. KULIKOV's first attempt to deal with economic crime and corruption came this week when he dismissed Yuri KALININ,

head of the Interior Ministry's main administration for confinement. KALININ and his department allegedly misused budget funds, said Kommersant-Daily.

Duma on Gosstrakh, RTR, Dual Citizenship

· The Russian State Duma on Wednesday asked the government to postpone the privatization of the Russian state insurance company Gosstrakh, reported Itar-Tass. In its resolution, the Duma said that the Gosstrakh sell-off should be delayed until the restoration of the value of savings to Russian citizens who lost money under a "personal insurance scheme before January 1, 1992."

According to today's Izvestia, The Russian government had planned to sell a 50 percent stake in Gosstrakh this year to an initiative group, headed by Gosstrakh chairman Vladislav REZNIK. The stake would be sold in two chunks, first 20 percent for two billion rubles (about $354,000) and then several months later another 30 percent for three billion rubles. The newspaper argued that these sums are ridiculously low. It estimated that Gosstrakh holds life insurance policies for some 55 million Russians. The remaining 50 percent of the shares of the insurance company will later be sold off for 50 billion rubles ($8.8 million), said Izvestia.

Also on Wednesday, the Duma adopted a resolution ordering an audit of the Russian State Television and Radio Broadcasting Company (RTR). The Duma instructed the Audit Department to examine how the company disposed of federal funds, RTR agreements with various commercial and non-commercial organizations, and the use of both profits from advertising and foreign exchange funds. The results of the audit are expected to be reported to the Duma by March 20.

Economy

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

Ruble = 5,652.5/$1.00 (CB rate)

Ruble = 5,645|5,660/$1.00 (buy|sell rates)

Federation Council Passes 1997 Budget

· The Russian Federation Council (upper house of parliament) on Wednesday voted 120-25, with nine abstentions, to approve the draft 1997 federal budget. The 1997 budget puts projected revenue at

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434.4 trillion rubles ($79 billion) and expenditure at 529.8 trillion rubles ($96 billion) with a deficit of just over 95 trillion rubles ($17 billion) or 3.5 percent of gross domestic product (GDP). The budget was adopted by the lower house last month and will now go to President Boris Yeltsin to be signed into law.

Government Considers Airplane Leasing Plan

· The Russian government will soon discuss a draft project for the production and leasing of 20 Tupolev Tu-204 planes to Russian air companies, reported Itar-Tass on Wednesday. The project was submitted by the Russian Aviation Consortium (RAC) financial and industrial group and covers the period of 1997_1998. RAC general director Tatevos Surinov told Itar-Tass that, "It is for the first time that the state is taking concrete measures to solve leasing organization problems." Leasing is seen as a way to help the aviation sector out of its current crisis. Russian airlines badly need new planes, but lack the financing to buy them, and consequently airplane producers' lack customers.

Summing up the work of the RAC in 1996, Surinov said that seven new members had joined the consortium, which allows it to embrace the whole range of work—from production to air transport.

Israeli Arms to India via Russia?

· The Hindustan Times newspaper reports that Israel has agreed to sell India high-tech electronic warfare technology and deliver it through Russia to avoid any possible protest from the US or the Arab world, said United Press International (UPI). The report says Israel has agreed to give sub-contracts to Russia for supplying defense equipment to India.

India has sought Israeli help in developing Akash (Sky), its indigenous anti-missile system. Israel also agreed to help India upgrade 130 and 152 mm self propelled guns to 155 mm guns in collaboration with Russia, said UPI. This week, Russia assured India that it will supply two reactors for its nuclear plant, as planned, despite stiff opposition from the US.

Joint Ventures Double Oil Production

· The volume of oil produced by joint ventures in Russia has more than doubled over the last five years, reaching 22 million tons, or 7.7 percent of the country's output, in 1996, reported RIA Novosti. Seventy percent of this output, or 4.5 million tons,

was produced by companies with a foreign partner, according to ASSOSPNEFT, a public non-profit organization composed of oil sector enterprises with mixed Russian-foreign capital. The group, founded in 1994, includes 27 joint ventures.

Business

Russia, Finland, UAE Trade Triangle

· The United Arab Emirates (UAE) and Finland are considering forming a trade triangle to service Russia and the Commonwealth of Independent States (CIS), reported Compass news today. The UAE daily Gulf News quoted the Finnish charge d'affaires in Abu Dhabi, Caj Soderlund, as saying a trade team from the Finnish port of Lappeenranta would visit Dubai from March 26-30 to meet with officials including representatives of the Jebel Ali Free Zone and Dubai Ports Authority.

Soderlund said Finland was looking at a trade triangle including Jebel Ali, Lappeenranta, and St. Petersburg to service Russian and CIS markets. He said that Lappeenranta, located near the Russian border, hoped to be Russia's gateway to Europe, and to get to CIS markets through Russia. But Dubai is the main cargo hub for the southern CIS countries and Moscow businesses, he said. He said cooperation between Dubai and Finland made sense since they both had existing trade with Russia and the CIS, were both small and efficient, and both provided a secure climate for investment.

St. Mary's Sells Chernogorskoye Stake

· Denver, CO-based St. Mary Land & Exploration Company on Wednesday closed the sale and exchange of its 18 percent working interest in the Chernogorskoye oil field in western Siberia, said a company press release. Net consideration is $17.2 million, composed of cash, common stock of the buyer, Ural Petroleum Corporation, and an amount payable out of production. St. Mary's unaudited book value of its Russian investment at December 31, 1996 was $6.1 million.

Chelsea Corporation, a wholly-owned subsidiary of St. Mary, owned a 36 percent interest in the Anderman/Smith International-Chernogorskoye partnership which, in turn, owns a 50 percent interest in a venture which is developing the Chernogorskoye oil field. In accordance with the terms of the acqui

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sition agreement, Chelsea received cash consideration of approximately $5.2 million, approximately $1.7 million of Ural Petroleum common stock and a receivable in the form of an amount payable out of production of approximately $10.3 million plus interest at 10 percent per annum from the limited liability company formed to hold the Russian interest.

Airton to Distribute HPs

· Russia's Airton plans to sell up to $15 million worth of hardware for US Hewlett Packard under a new dealership agreement, reported Interfax. The Russian company will receive $5 million worth of low-cost laser and inkjet printers, scanners and Vectra PCs by the end of February. The equipment will be sold through Airton's network of dealers and three Moscow retail outlets.

Airton will be one of 40 direct Hewlett Packard dealerships in the CIS. Airton is the trading division of Russia's second biggest PC assembler, R&K. Hewlett Packard had sales of $82 million in the region from November to January, including an $11 million sale to Russian savings bank Sberbank.

ANSER 1996 Russian Space Program Report

· Arlington, VA-based ANSER, an independent research institute, has released its third annual report on the activities and major trends within the Russian space program, said a company press release. The report, 1996 Year in Review, is issued by ANSER's Center for International Aerospace Cooperation. Topics reviewed include international cooperation, the driving force behind Russia's space flight program; funding of the Russian Federal Space Program; Russia's emerging role in the commercial launch market; program setbacks, including loss of the Mars-96 space probe; launch successes over the year; and an overall view of the Russian economic situation.

ANSER, a not-for-profit public service research institute with offices in Arlington and Moscow, was founded in 1958.

South Caucasus & Central Asia

EBRD Loan for Uzbek Banking

· The European Bank for Reconstruction and Development (EBRD) has granted a medium-term loan of $120 million to Uzbekistan to develop the country's banking sector, reported Itar-Tass today. The National Bank of Uzbekistan and the Asaka-Bank financial company have already been approved to receive a portion of the credit, which will be divided among several Uzbek banks.

Since 1993, the number of commercial banks in Uzbekistan has grown markedly and the EBRD credit line will help the republic's private banking sector to become independent. This new credit line was granted after Uzbekistan had fully repaid the first three-year loan of $60 million from the EBRD, which has invested over $410 million in the Uzbek economy.

Tajik Rebels Shoot a UN Observer

· Tajik rebel field commander Bakhrom Sadirov has shot to death a UN military observer that he was holding hostage, according to Itar-Tass and Interfax. In three separate incidents last week, SADIROV and his men kidnapped four Russian journalists and their driver, five UN military observers, four UN refugee agency workers, and two Red Cross workers. He demanded that 40 rebel fighters loyal to his brother, field commander Rezvon, be flown home from neighboring Afghanistan.

During the last week, UN and Tajik officials have been negotiating with SADIROV, who has released the two Red Cross workers and one of the UN military observers. On Saturday, the rebels also seized Tajikistan's security minister when he flew over to negotiate the hostages' release.

The Tajik government today flew in the 40 Tajik fighters, but disagreements over the details of exchanging them for the hostages has led to a delay in their release. SADIROV and his brother now reportedly plan to add to their original demands.

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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