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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, February 21, 1997

Russian Federation


Zyuganov Explains View on NATO

· Russian Communist Party leader Gennady Zyuganov told the US-Russian Business Council in Washington Thursday that Western plans to extend NATO eastward are a mistake and will serve to encourage extremist tendencies among the Russian population, reported Itar-Tass. He is visiting the US at the invitation of the New York-based Council on Foreign Relations. Zyuganov shrewdly told his audience that he was in agreement with views expressed by George KENNAN in a recent New York Times op ed. KENNAN said that NATO expansion is a "fateful error" that could have "an adverse effect on the development of Russian democracy."

Russia is not unaware that other major US political scientists are beginning to voice doubt about the wisdom of NATO's eastward expansion. Rossiiskiye Vesti today published statements on NATO made by former US ambassador to Moscow Jack Matlock in a recent speech in New York. He said that NATO expansion would be the West's strategic mistake based on a lack of understanding of the Russians' mentality, according to the paper.

Speaking to the Carnegie Endowment for International Peace in Washington on Thursday, ZYUGANOV said that his National-Patriotic Alliance (a coalition of leftist forces) had decided to support a nationwide protest action being planned by Russian trade unions on March 27. A group of three major trade unions called for the general strike to demand that the government pay some $10 billion in wage arrears to Russian workers. "We know this could lead to a general uprising.... The country is becoming more radical every hour," ZYUGANOV is quoted by today's Washington Times as saying.

ZYUGANOV then compared today's Russia today to the situation in the country in 1917 prior to the Bolshevik revolution, pointing to the war in Chechnya and economic hardships. "Any mass protest under these conditions would necessarily lead to a retirement of the political power," referring to the government of the ailing President YELTSIN.

Meanwhile in Paris, Russia's most ambitious politician Aleksandr LEBED told Le Monde that the situation in Russia was "disgusting" and predicted that there could be a social explosion by the end of this year, reported Reuters.

In addition, Russia's prestigious Strategic Analysis and Forecasting Center predicted that public mistrust for the government will increase this year and "the critical mass of public discontent will continue to accumulate," reported Thursday's Delovoi Mir. Further, the Center believes that nationwide general strikes are likely to take place with teachers and medical workers joining higher education teaching staff, scientists and military and defense complex personnel in protest actions. The strike movement is most likely to "reach its climax" in late February-early March of this year, it said.

FSB Moscow Branch Director Fired

· Russian President Boris YELTSIN has dismissed Anatoly TROFIMOV, a deputy chief of the Federal Security Service (FSB) and the head of its Moscow branch, for "gross violations and flaws in his work,"

Today's News Highlights


Restrictive For. Investment Law

Gold Industry Problems

Capital Flight Numbers

European Republics

Ukraine's Hryvnia Gains Strength

Personnel Problems at Ignalina

South Caucasus & Central Asia

AIOC Plans Expanded Pipelines

World Bank Stops Uzbek Loan

Coca-Cola in Uzbekistan




February 21, 1997

Intercon's Daily

Ruble = 5,669/$1.00 (NY rate)

Ruble = 5,667/$1.00 (CB rate)

Ruble = 5,660|5,674/$1.00 (buy|sell rates)

development of weapons and military equipment on new physical principles, civil defense, access to classified information, production of Russian banknotes, coins, and securities, mandatory state insurance, and mandatory health insurance.

The law must be approved during two more readings in the Duma and then passed by the Federation Council and signed by President Boris YELTSIN.

Comment: Laws like these are the reason that the Duma is not viewed as a serious legislative organ trying to solve the problems of the country. Instead of creating of a legislative basis to assist the progress of the Russian economy, it engages in polemics.

Gold Industry Holds Emergency Meeting

· Russian gold industry representatives, disturbed by an absence of promised pre-production funding from the government, held an emergency conference on Thursday, reported Prime-Tass. The conference urged the government to immediately clear the budget's debt for 1996 gold procurement. It also demanded that the president and government decree regulations for the funding of the gold mining sector and amend the law allowing the Central Bank to fund gold mining. Participants demanded the firing of the Finance Minister and other officials responsible for the collapse of Russia's gold industry.

An Industry Ministry official told Prime-Tass that only 50-60 percent of Russia's gold output targets for 1997 can be met because pre-production funding lags behind schedule. Vladimir Piskunov, the chief of the precious metals and stones department, said quotas were issued for extraction of 140 tons gold. But this target can not be reached because budget payments were not received in time for the gold-mining sector to prepare for the new mining season. Gold output in 1996 was 124 tons.

Piskunov said the Industry Ministry's precious metals and stones department is drafting a restructuring program for the gold industry. One of its major provisions is the amalgamation of 60 percent of gold companies into large corporations.

Livestock Sector in Steady Decline

· Output in the Russian livestock sector during 1996 continued to decline, and further decreases in all live animal numbers are forecast for 1997, said a

Sep Oct Nov Dec Jan Feb

reported Dow Jones today. According to Interfax, TROFIMOV was fired following an examination by federal accountants.

But Russian Public Television (ORT) interviewed the head of the accounting agency, Aleksandr KUSHNAR who said he had found nothing in his audit of TROFIMOV's department that could have provided grounds for his dismissal. "This decision was a surprise to us. We do not know why the president did this," said a spokesman for the FSB's Moscow department.

Ekho Moskvy radio reported that TROFIMOV was fired after two of his officers were arrested on drug trafficking charges.


Duma Considers Foreign Investment Bill

· The Russian State Duma on Friday passed, on the first reading, amendments to the law on foreign investment, which limit or prohibit the ability of foreigners to invest in several key economic sectors. The bans and restrictions are aimed at protecting defense capabilities, national security, economic independence, health and morals, natural resources, and cultural values, said Itar-Tass. Limits on foreign investment apply to telecommunication, electric power distribution, railroad services, the production of some pharmaceuticals, and precious metals and stones output and refining. The law bars foreign investment in the prospecting and extraction of uranium ores,

When you need to know it as it happens




February 21, 1997

Intercon's Daily

newly-released report from the US agricultural attaché in Moscow, according to Futures World News (FWN). Beef and pork consumption and supply were down in 1996 and are forecast to continue to decline in 1997. The gap between incomes and purchasing power increased this year, so meat consumption fell.

Russian State Statistics Committee (Goskomstat) data show that during the first nine months of 1996, beef imports increased slightly, while pork imports remained nearly at the same level as in 1995, said the report. Prices for meat in 1996 did not rise as much as in 1995 and are not expected to rise in 1997, given continued income constraints on demand.

Feed supplies used in meat production declined in 1996 over 1995. However, animal herd sizes decreased by 10 percent, so feed supply per head rose by two percent relative to 1995. Production of meat in Russia continues to decline sharply as herd sizes and live weights continue to fall.

State subsidies are not covering farmers' losses. The result is that the Russian government is losing its influence over prices and cannot maintain its politically popular policy of low retail meat prices.

Some Capital Flight Figures

· Russian Academy of Sciences' Institute of Economics head Leonid ABALKIN told RIA Novosti today that Russian capital is currently leaving the country at the rate of $1.5-2 billion per month. During 1996, according to the Institute's data, no less than $24 billion found its way abroad, he said.

The total volume of capital flight from Russia over the last five years is estimated at some $60 billion, reported Finansoviye Izvestia last week, citing a former partner in the Moscow branch of Coopers & Lybrand. Most of the money was deposited in banks in Switzerland and Cyprus.


VSMPO Teams with Agmark

· US freight giant Agmark has teamed up with Russia's Verknaya Salda metallurgical production association (VSMPO) for an $850,000 feasibility study of the production of titanium food and chemical containers, reported Interfax today. VSMPO, located in Sverdlovsk, hopes to begin producing

20,000-24,000 liter cylindrical containers by the end of the year, said first deputy general director Aleksandr GISHECHKIN.

Agmark and VSMPO believe they could gain half the world market for intermodal liquid containers. The companies plan to target sales at major food and chemical companies in the US and Europe. Financing and production levels for the project will be decided based on the results of the feasibility study and a study of world market demand for the product.

VSMPO, privatized in 1993, is the world's largest producer of titanium alloys. Over 70 percent of its shares are held by employees. The plant is currently working at only 25 percent of its annual processing capacity of 65,000 metric tons of titanium. Intercon reported January 27 that VSMPO plans to increase titanium exports to US Boeing Aircraft by 20 percent this year. Boeing last year purchased 30 percent of VSMPO's 7,000 metric tons of exports.

European Republics

Ukrainian Currency Gaining Strength

· The value of Ukraine's currency, the hryvnia, has increased seven percent against the US dollar in the past few days, the sharpest rise since it was introduced as the country's permanent currency last fall, reported the Associated Press (AP). The hryvnia traded at 1.73 to $1.00 today, compared with 1.86 five days ago.

Ukrainian central bank spokesman Dmitri RIKBERG attributed the jump to Ukrainian banks dumping dollars on Kiev currency markets and buying up highly rated government bonds, said AP. He said the bank may buy up dollars to slow the hyrvnia's rise in the interests of maintaining stability.

Lithuania Fires Nuclear Plant Director

· The Lithuanian parliament has fired the director of personnel at the Ignalina nuclear power plant for "gross violations" in employment practices, reported Itar-Tass. The parliamentary committee on national security reportedly obtained evidence that the plant's administration concluded 22 new employment contracts in July, October, and December 1996, but bypassed the mandatory recommendation of applicants by the Lithuanian security ministry.

When you need to know it as it happens




February 21, 1997

Intercon's Daily

An investigation of the plant's employment practices revealed that the new staff includes persons with psychological problems, alcoholics, and ex-convicts who were hired without clearance for entering reactor facilities.

Some 90 percent of the 5,000 personnel at the Ignalina plant are specialists from other former Soviet republics. The recruitment and training of Lithuanians workers for the plant only began a few years ago.

South Caucasus & Central Asia

AIOC to Expand Capacity of Pipelines

· The international consortium developing huge oil reserves in the Azeri sector of the Caspian Sea said it is considering expanding the capacity of the two pipelines that will carry its early oil output to the West, reported today's Financial Times. The Azerbaijan International Operating Company (AIOC) says that the capacity additions to the Western route (via Georgia) and the Northern route (via Russia) are meant to relieve pressure to choose a long-term pipeline route for the project.

The AIOC on Thursday confirmed that it is considering steps to boost the capacity of the Western route by adding additional compressors. But plans for the Northern route are apparently uncertain as the AIOC does not know the condition of the section that passes through Chechnya. The Western line will have a final capacity of 200,000 barrels per day.

Power Cut to Almaty for Nonpayment

· The Belgian company Almaty Power Associated, which took control over the Kazakh capital's centralized electricity and power supplies in mid-1996, has begun cutting off power to city enterprises, institutions, and government buildings that have failed to pay their bills, reported Itar-Tass. Enterprises and institutions funded from the city budget owe Almaty Power over 700 million tenge (about $53 million) in past due bills. Because of a lack of working capital,

Almaty Power said it was forced to drastically curtail its services and begin introducing penalties against insolvent heat and power users. The company said it is trying to work out a deal with city officials to turn power back on to schools and day care centers, but the city government has been uncooperative.

World Bank Stops Loan to Uzbekistan

· The World Bank has postponed indefinitely the release of a $180 million loan to Uzbekistan for reforming Uzbek companies because the country has failed to meet economic targets, reported Interfax, citing the head of the World Bank office in Uzbekistan Hasso MOLINEUSS. The Bank had planned to consider the loan's release in late November 1996 and extend its first tranche in December. As a result of the economic situation at the end of last year, including a monthly inflation rate of 15 percent in December 1996, the Bank did not consider it possible to approve the loan.

Tashkent and the World Bank are currently holding talks on loans for developing the health care system and improving irrigation in the areas near the Aral Sea, said MOLINEUSS.

Coke to Invest $100 Million in Uzbekistan

· The US Coca-Cola Company today opened a $10 million bottling plant in the Uzbek town of Namangan, its third facility in the country. The company plans to begin construction on a $55 million bottling plant in Tashkent next month. The Tashkent plant will be owned by a joint venture between Coca-Cola Export Corp., Uzbekistan's Roz Group, and the state-owned Uzpisheprom.

"Coca-Cola will be investing $100 million over the next 18 months in Uzbekistan to further develop our local production and distribution," John SHEPPARD, president of Coca-Cola East Central Europe, is quoted by Reuters as saying. He said that the investment was part of a two-year investment plan for the South Caucasus and Central Asia totaling $200 million.

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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When you need to know it as it happens