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

Tuesday, February 18, 1997

Russian Federation

Politics

Yeltsin Busy with Foreign Affairs, Defense

· The still-recovering Russian President Boris Yeltsin has a number of major meetings scheduled for this week, in what could prove a major test of his fragile health.

He met with Palestinian leader Yasser Arafat in the Kremlin today to discuss the Middle East peace process and will hold talks on NATO's eastward expansion with US Secretary of State Madeleine ALBRIGHT on Friday. German Foreign Minister Klaus Kinkel arrived in Moscow today for talks on European security and prospects for relations between Russia and NATO, but is not expected to have an audience with YELTSIN. Presidential spokesman Sergei Yastrzhembsky said today that Belarus President Aleksandr Lukashenko will meet with YELTSIN in Moscow on March 7.

The president also held a 40-minute meeting on Monday with frustrated Defense Minister Igor RODIONOV. The Minister has lately been issuing dire warnings about a possible breakdown of diiscipline within the cash-strapped military and complaining of a lack of access to the president.

Following the meeting, YELTSIN acknowledged problems in the military and publicly refuted recent rumors in the press that RODIONOV would be replaced by Defense Council chairman Yuri BATURIN. Speaking on Russian television, Yeltsin said, "The recent increasingly frequent speculations about the replacement of the defense minister are absolutely groundless," according to the Associated Press (AP). "Yes, the armed forces are in a difficult situation, and the defense minister deserves credit for his efforts to improve the situation."

Lebed Makes Another Gloomy Forecast

· Russia's most ambitious politician Aleksandr LEBED, in France on a five-day visit, made dire predictions of unrest in Russia, even while encouraging foreign investors to risk their money in the Russian market. "The system which Russia's political establishment represents is condemned and rotting in place. In a year at the most it will disappear," he told Le Figaro in an interview published Monday. He also suggested that if the YELTSIN government attempts to increase its powers further, the Russian people could take to the streets in protest.

Today, LEBED flew by helicopter to the village Colombey-les-Deux Eglises, the hometown of the late French leader Charles de GAULLE, apparently one of LEBED's heroes, reported Reuters. He is scheduled to meet today with de GAULLE's son, Philippe, a member of the French Senate, as well as Senate speaker Rene MONORY, business and political leaders, and Bank of France officials.

Economy

Ruble = 5,644/$1.00 (NY rate)

Ruble = 5,660/$1.00 (CB rate)

Ruble = 5,653|5,667/$1.00 (buy|sell rates)

GDP Up in Jan.

· The Russian State Statistics Committee (Goskomstat) reported mixed economic news on Friday, estimating that gross domestic product (GDP) had increased in January, while government rev

Today's News Highlights

Russia

Oneximbank-Industry Min. Deal

Kvaerner in Sakhalin-1 Deal

McDonald's Russia Picks DBB

European Republics

Ukraine & the EBRD

Ukraine Agriculture Min. Fired

Transcaucasia & Central Asia

Mobil-Monument in Turkmen

New Turkmen Gas JVs

Updates: Tajikistan; Chechnya

Politics-Economics-Business

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Tuesday

February 18, 1997

Intercon's Daily

Tuesday Tidbit

try Minister Yuri Bespalov, permits Oneximbank to act as the ministry's dealer in lending and to attract outside investment for conversion and investment programs. The bank will also control investment and be a guarantor for conversion and investment projects.

The Industry Ministry authorized the bank to service industrial plants, including their foreign projects. As a financial partner to the ministry and a consultant for its enterprises, Oneximbank takes up all their securities operations, deals on stock and financial exchanges, and depository servicing. The bank and the ministry have set up a standing cooperation commission.

Business

Kvaerner to Assist with Sakhalin Platform

· Norway's Kvaerner has been selected to assist the Sakhalin I Consortium in building a production platform in the Arkutun Daginsk oilfield off Sakhalin Island in Russia's Far East, said a Kvaerner press release. The company will assist with project management, engineering, and procurement and construction management for the platform's jacket and topsides. Emphasis will be placed on use of Russian equipment suppliers and fabrication yards on the project. Total installed cost for the project is approximately $1 billion.

Plans for the platform call for a fixed jacket supporting a 20-30,000 ton topsides with drilling equipment, processing facilities, and living quarters. The platform is expected to have a daily capacity of 115,000 barrels of oil and 360 million cubic feet of gas. Arkutun Daginsk lies in 40-45 meters of water about 20 kilometers off the northeast corner of Sakhalin Island, north of Japan's Hokkaido Island.

The Sakhalin I consortium includes US Exxon Neftegas Ltd., the project operator, which has a 30 percent interest, Russia's Rosneft-Sakhalin and Sakhalinmorneftegaz-Shelf with 17 and 23 percent, respectively, and Japan's Sakhalin Oil and Gas Development Corp. (SODECO) with 30 percent.

McDonald's Russia Chooses DBB Advertising

· US McDonald's in Russia announced on Friday the selection of Navigator DDB as their national advertising agency. Glen Steeves, McDonald's in

Would-be thieves

overstepped their criminal

capacities last week when they attempted

to rob two biathlon coaches on a highway

near Warsaw. Biathlon is a combination of

shooting and skiing. Russian coach Gennady RAMENSKY and his Belarussian counterpart

Konstantin VAIGIN were driving home from the world biathlon championships in Slovakia, when they were forced off the road by four men in a truck who

demanded their money, reported Friday's Washington Post. The two men stalled for time until the bus

carrying their athletes arrived. The robbers

realized their error and fled when the

biathletes began filing off the bus,

rifles loaded.

enues fell. GDP grew by 0.1 percent in January 1997 to $35 billion, compared to January 1996, marking the first increase since market reforms began in January 1992. In January 1996, GDP fell three percent from the same period in 1995.

January 1997 industrial output increased by 0.3 percent, while in 1996 it fell by five percent. However, energy production, a major sector of the economy, during the first month of this year was not so encouraging. Oil production dropped by 0.2 percent from the January 1995 to 24.7 million tons. Natural gas production increased by 0.7 percent over the same period last, growing to 55.1 billion cubic meters. Coal production fell by four percent, edging down to 22.4 million tons in January. Electrical output for the month amounted to 87.3 billion kilowatt hours, a four percent rise from December, but a one percent drop from January 1996 figures.

In addition, the Finance Ministry said Monday that federal revenues for January totaled 14.8 trillion rubles (about $2.6 billion), which was 4.8 trillion rubles ($848 million) less than the targeted figure.

Oneximbank-Industry Ministry Deal Struck

· Russian commercial bank Oneximbank and the Russian Industry Ministry have signed a cooperation deal to support industrial enterprises, high technologies, and defense conversion programs, reported Itar-Tass on Monday. The accord, signed by bank president Mikhail Prokhorov and Indus

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Russia managing director, commented that: "We are very excited with the appointment of Navigator DDB as the first advertising agency for McDonald's in Russia. We are impressed with them, both as a Russian agency and the fact that they are part of the DDB Needham Worldwide network, serving several other McDonald's countries."

McDonald's in Russia operates 10 restaurants in Moscow and two in St. Petersburg and employs over 3,500 Russians in the two cities. DDB has been associated with McDonald's since 1971. In Europe, they work with McDonald's in 25 countries, including Belarus and Lithuania.

DDB is the fifth largest agency network in the world with billings of over $8.9 billion in 1996. Navigator DDB estimates in 1997 billings from Moscow and St. Petersburg of over $25 million, with staff levels expected to grow to 65. It is anticipated that this growth will make Navigator DDB a top five agency in Russia, according to the press release.

New EBRD Strategy for Ukraine

· A European Bank for Reconstruction and Development (EBRD) delegation arrived in Kiev on Monday for a one-week visit to study Ukraine's domestic situation, including consumer demand, economic reform, and privatization, before formulating a detailed plan for new relations, reported Xinhua. The Bank is preparing a new three-year strategy to boost its cooperation with Ukraine.

The EBRD is planning to double its loans to Ukraine in 1997, if the country continues economic reforms and improves the investment climate. This year, the EBRD may provide Ukraine with an additional $300-600 million, which will equal or exceed its total loans to the country in the past four years, said the EBRD's representative in Kiev, Jaroslav Kinach. Since 1993, the EBRD has extended loans worth $440 million to Ukraine.

However, Kinach said, increased financial support depends largely on the Ukrainian government's will and ability to improve investment conditions in the private sector. "Ukraine is a priority country, but our success in financing projects depends on Ukraine's ability to implement reforms. If Ukraine is successful, we can be successful," he is quoted by Xinhua as saying. He applauded Ukraine's achievements in slowing inflation and reforming its currency since 1991, but said the government "has not done enough to make life easier for businessmen and investors, both foreign and local."

The government has submitted a package of economic reforms, which are partly designed to improve the business climate, to the Ukrainian parliament for approval. If the package is not approved, Kinach said, the consequences will spur a sharp decline in foreign investment and inflation and currency devaluation will follow. "The alternatives are truly terrible to contemplate," he warned.

South Caucasus & Central Asia

Mobil Joins Monument in Turkmenistan

· US Mobil Corp.'s Mobil Exploration & Producing Turkmenistan Inc. has joined the production sharing agreement between Britain's Monument Oil & Gas Plc and the government of Turkmenistan to develop and explore the Nebit Dag license in western Turk

European Republics

Police Arrest Protesters in Minsk

· Police used tear gas against about 3,000 people in Minsk on Friday protesting Belarussian President Aleksandr LUKASHENKO and his pro-Russian policies, reported Reuters. Some 10-40 protesters were arrested. The crowd handed petitions asking for help from the west to the embassies of France, Britain, Italy, Germany, and the US as they waved flags and shouted, "Down with Luka."

Kuchma Fires Agriculture Minister

· Ukrainian President Leonid KUCHMA on Friday dismissed Agriculture Minister Anatoly KHORISHKO and deputy Minister of Transportation Leonid ZHELEZNYAK. Although the firings were announced at a meeting of a presidential committee on organized crime and corruption, KUCHMA did not link the two ministers with corruption, said Monday's OMRI.

The president said that "serious inadequacies" existed in KHORISHKO's ministry, but did not announce a successor for the agriculture post although the spring sowing season is due to begin next month, said Reuters. KHORISHKO was appointed last summer after Ukraine brought in a record low grain crop of 25.4 million tons, down from 36.5 million in 1995.

When you need to know it as it happens

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menistan, said a Mobil press release. In a separate agreement with the Turkmen government, Monument and Mobil have also extended their exploration and producing program to cover other opportunities in the same region.

The Nebit Dag area is operated by Monument and covers 2,000 square kilometers near the Caspian Sea containing five producing properties. Mobil now holds a 40 percent interest in the area. Monument will soon undertake a seismic program covering the entire license area. Field operations, including extensive reviews of the Burun field facilities and pipeline systems, have already begun and additional production is expected to begin by the second quarter of 1997.

Mobil and Monument also entered into an agreement with the Turkmen government for the exclusive right to negotiate a production sharing agreement for a second, 18,000 sq. km producing region near the Caspian coast.

Under the agreement Mobil, Monument, and Turkmen oil company Turkmenneft will conduct joint technical and commercial studies and negotiate the terms of the production sharing agreement. The area encompasses most of the country's onshore oil-producing region. Mobil will hold a 65 percent interest in the northern part of the venture and a 70 percent interest in the southern part, with Monument holding the balancing interests.

Two New Joint Ventures in Turkmenistan

· Turkmen President Saparmurat Niyazov today signed two agreements with foreign companies giving the go ahead to large-scale oil and gas sector projects worth $580 million, reported Itar-Tass.

One agreement calls for three Japanese companies—Itochu, JGC, and Nissho Iwai—to build Turkmenistan's first factory for the production of polypropylene in the city of Turkmenbashi. The Japanese government is to allocate $400 million for

this project. The plant will have a capacity of 90,000 tons of polypropylene a year.

The other agreement deals with a Gas Industry Infrastructure project, led by the Dutch company Bateman, which has attracted $180 million in South African and US investments. Niyazov said both projects are intended to give a powerful impetus to the development of the gas processing sector and to ensure the dependability of the operation of Central Asian gas pipelines.

Updates

Tajikistan: A two-week hostage drama in Tajikistan which involved the capture of Russian journalists, UN military observers and refugee workers, and the Tajik Security Ministry, and included a false report that a hostage had been shot by the rebel captors, ended on Monday after Tajik President Emomali Rakhmonov personally participated in the negotiations for the release of the last 11 hostages.

Chechnya: Two Russian public television ORT reporters, abducted in Chechnya on January 19, have been freed. Roman PereveDentsev and Vyacheslav Tibelius arrived in Moscow today. Russian Security Council deputy Secretary Boris Berezovsky headed the operation for their release, but would not give details on how it was accomplished. The two journalists left Grozny by car on January 19 and drove towards Ingushetia, but never arrived in Nazran.

Recently-elected Chechen President Aslan Maskhadov dissolved the republic's cabinet on Sunday and announced that he would hold the post of prime minister. Maskhadov will also serve as the republic's commander-in-chief and no defense minister will be appointed. The formation of a new Chechen government has already begun with former information minister Movladi Udugov reportedly appointed Foreign Minister and Musa Doshukayev tapped to be a deputy prime minister.

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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