DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 908,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, February 4, 1997

Russian Federation

Politics

Yeltsin in Kremlin, Chernomyrdin on NATO

· Russian President Boris Yeltsin made a surprise visit to the Kremlin today and met with Prime Minister Viktor Chernomyrdin for an hour. Presidential spokesman Sergei Yastrzhembsky told reporters that the two discussed the premier's trip to the World Economic Forum in Davos and his upcoming visit to Washington for talks with US Vice-President Al GORE as well as the pension and wage arrears situation in Russia.

CHERNOMYRDIN leaves for Washington on Wednesday. Based on tough statements against NATO's planned expansion that he made in an interview with the Washington Post, published today, this 8th meeting of the GORE-CHERNOMYRDIN commission could prove difficult.

"The thing is that I'm worried about Russia, what might happen in Russia," CHERNOMYRDIN is quoted in the Post as saying. Ultranationalists "will accuse the president and the government of doing nothing to prevent this development...so we have to arm ourselves. The production facilities are there in brand new condition, they are waiting," he said. "This is how the employment problem will be resolved.... The tanks will be rolling out, and the planes. Do we need this?"

Russian presidential chief-of-staff Anatoly Chubais, speaking to reporters in Davos, on Monday made a similar argument about the possible affect of NATO expansion on the Russian hardline opposition. He argued that advocates of NATO expansion give Russian communist and nationalist forces "an excellent argument" to strengthen their anti-Western positions, reported Itar-Tass. "We are now faced with

a situation when the decisions that are being adopted...[may] alter the entire political landscape in Russia. This will inevitably lead to a revision of the principles on which all the Russian external policy is based," he said.

Almost on cue, Communist leader Gennady Zyuganov today blamed Yeltsin for NATO expansion, saying that his regime's policies weakened Russia, reported United Press International (UPI).

Kulikov Named Deputy Prime Minister

· Russian President Boris Yeltsin today promoted Interior Minister Anatoly Kulikov to the post of deputy prime minister in charge of combating crime. Kulikov will retain the position of Interior Minister while also overseeing the tax police, customs service, and other agencies dealing with economic security.

"A need emerged for closer coordination...in the fight against crime, first of all economic crime," presidential spokesman Sergei YASTRZHEMBSKY is quoted by Reuters as saying. The conservative KULIKOV, who sharply criticized last year's peace accord with Chechnya, becomes the ninth deputy prime ministers in the government.

Rumors that KULIKOV would be made deputy premier had been circulating around Moscow for some time. It is interesting, however, that the personnel decision was made while presidential chief-of-staff Anatoly

Today's News Highlights

Russia

Dep. FinMin's Car Bombed

Russia Plans 2nd Eurobond

Chechnya Angry Over Oil

P&W/Energomash JV Head

European Republics

Ukraine Foreign Trade Up

BMW Shop in Moldova

Transcaucasia & Central Asia

Transneft-SOCAR Disagree

USAID Conf. in Central Asia

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CHUBAIS was out of the country. Rumor also has it that CHUBAIS, a political foe of KULIKOV, will be dismissed when YELTSIN recovers from his various illnesses and returns to run the Kremlin.

Deputy Finance Minister's Car Bombed

· A minor explosion rocked the car of First Deputy Finance Minister Andrei Vavilov on Monday evening, but no one was hurt in the incident, reported Russian television. The Saab-9000 was standing empty in front of the Finance Ministry building, located several hundred meters from the Kremlin, when a bomb blast damaged the passenger side door and part of the front windshield.

In a separate incident Monday in St. Petersburg, a Zhiguli automobile exploded killing one man and injuring a person nearby, reported Interfax. The car was parked near a jewelry store on Stachek Prospekt.

Economy

Ruble = 5,631/$1.00 (NY rate)

Ruble = 5,637/$1.00 (CB rate)

Ruble = 5,632|5,642/$1.00 (buy|sell rates)

Russia Plans Second Eurobond Issue

· Russian Finance Minister Aleksandr Livshits will visit Bonn on Wednesday to discuss the restructuring of Russian debt to Germany with his German counterpart Theo Waigel, reported Prime-Tass on Monday. LIVSHITS will also hold talks on holding a DM-denominated Eurobond issue. LIVSHITS told RIA Novosti that Russia plans two or three Eurobond issues this year, following up a successful $1 billion US$-denominated issue in November 1996.

Livshits said Russia plans to issue DM1 billion worth of Eurobonds in early March and that the second issue will target a wider range of investors. Deutsche Morgan Grenfell and Credit Suisse First Boston will manage the issue.

Russia/Chechnya Wrangle Over Oil Shipments

· Khozh-Akhmed Yarikhanov, the president of Chechnya's Southern Oil Company, told Itar-Tass today that Grozny may give up the services of the Russian oil pipeline company Transneft and conclude a direct agreement on the transportation of Azeri oil through Chechnya with the Azerbaijan International Operating Company.

The threat appears to be an expression of frustration over Moscow's failure to agree on certain issues relating to oil transport through the Chechen republic. Russian Prime Minister Viktor Chernomyrdin and Chechen leader Aslan Maskhadov signed an agreement in Moscow on November 23, 1996, on the use of the Chechen pipeline, but decisions on security provisions and transit fees, supposed to have been resolved last year, are still outstanding.

It is unlikely, however, that the AIOC would agree to conclude a separate deal with Chechnya, particularly as the Chechen section makes up only one-tenth of the Baku-Novorossiisk oil pipeline.

Business

P&W/Energomash JV Head Named

· Robert L. Monaco was named today to head RD AMROSS, LLC., a new joint venture between Russia's NPO-Energomash (NPO-EM) and US Pratt & Whitney (P&W) Space Propulsion, said a company press release. The new joint venture will be headquartered in Florida with key operations at both NPO-EM in Russia and P&W in the US. It will manage production and sell the RD_180, a new derivative Russian booster rocket engine being developed to power Lockheed Martin's Atlas IIAR advanced rocket.

Monaco, who now reports to the joint venture's board of directors, was appointed vice president of finance for P&W Government Engines & Space Propulsion in 1986. He was on the founding team that established International Aero Engines, a consortium that produces the V2500 engine for McDonnell Douglas' MD_90 commercial aircraft. Monaco joined United Technologies Corp. in 1961.

NPO Energomash is Russia's leading space propulsion organization, recognized for developing powerful liquid-propellant rocket engines. Located in Moscow Oblast, NPO-EM includes a central design bureau and manufacturing and testing facilities.

P&W's Space Propulsion business includes liquid rocket propulsion in West Palm Beach, Fla.; solid rocket propulsion in San Jose, Calif.; and Space Shuttle solid rocket booster refurbishment and system integration at Kennedy Space Center, Fla. P&W is a unit of United Technologies Corp.

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European Republics

Ukrainian Foreign Trade up in 1996

· Ukraine's foreign trade totaled nearly $38 billion in 1996, a 19 percent increase from the previous year, reported Xinhua, citing Ukraine's Trade Ministry. The country's trade deficit was $809 million, with exports of $18.58 billion and imports of $19.389 billion. The proportion of trade based on barter fell in 1996 to 20.1 percent, from 31 percent in 1995. Russia continued to be Ukraine's largest trading partner, followed by other member countries of the Commonwealth of Independent States (CIS).

BMW Service Station Opens in Moldova

· Moldova's BMW owners got a new service center last week when Germany's BMW became the fourth Western automaker to open a shop in Kishinev. The company opened the center under an agreement with Moldovan-owned Auto Space, its sole distributor in the country, reported Interfax today.

BMW manager for Eastern Europe Reinhard MUND told Interfaz the Auto Space center was equipped as well as any in the US, Japan, or Europe. The two companies did not say how much they had invested in the project. Moldovan traffic police have registered about 3,500 BMWs, most of which are older models brought to the country from other countries.

Moldova Plans Eurobond Issue

· Moldovan Finance Minister Valeriu CHITAN said Monday that his country will issue $70 million worth of Eurobonds in April, reported RIA Novosti. Interest on the five-year Moldovan bonds will be between seven and nine percent annually.

South Caucasus & Central Asia

Canadian/Armenian Gold Deal

· Canada's First Dynasty Mines Ltd. announced today an agreement with Global Gold Corporation and its subsidiary Global Gold Armenia Ltd. to revitalize the Armenian gold industry, said a Dynasty press release. Global is party to a multi-stage joint venture with the Armenian Industry Ministry and state-owned Armgold gold enterprise. The initial stage of the venture involves the construction of a tailings re-processing plant in which Global has a 50 percent interest.

Based on comprehensive feasibility studies and business plans to be agreed upon by all parties, further stages of the joint venture provide for upgrading and expanding the facilities at the Zod and Meghradzor mines plus advancing several later-stage exploration projects.

The Zod and Meghradzor mines have estimated resources of 5.9 million ounces of gold. The potential for significantly expanding their resources is believed to be excellent. The companies plan to progressively modernize the facilities, achieving production in excess of 300,000 ounces in 1999. Construction of the tailings re-processing facility will begin immediately. Expected production is 24,000 ounces of gold per year, beginning in September.

US Continues Aid to Armenia

· US Ambassador Peter Thomsen told a press conference on Monday that the US will continue to provide aid to Armenia to support democratic and market reform, reported Itar-Tass. The US will continue to provide assistance to Armenia in 1997 both in the form of humanitarian aid and development programs. In the near future, the US government is expected to extend a $30 million loan to Armenia to buy natural gas through a tender, said the Ambassador. Total US aid to Armenia in 1997 should reach $95 million, including $6 million to increase the safety of the Armenian nuclear power plant Metzamor.

US aid to Armenia in 1996 totaled $150 million, including $85 million through the US Agency for International Development (USAID), $15 million

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through the Department of Defense, and $50 million through the Treasury Department, the Department of Energy, and the State Department.

Armenia Approves Oil Exploration

· The Armenian government on Thursday approved an October agreement between the Energy Ministry and an Armenian-American joint venture oil company which allows oil and natural gas surveys in a large area around Yerevan, reported OMRI.

The American side will invest some $100 million in the project. Exploration is set to begin this month, said Energy Minister Gagik MARTIROSYAN with results expected by the summer. The minister added that an unnamed American oil company operating in Baku will receive a concession to develop the prospective oil fields. Many believe this company to be Amoco, which is active in neighboring Azerbaijan.

Transneft Refuses SOCAR Oil

· Russian oil transport company Transneft has refused to transport Azeri crude through its pipeline to the Black Sea port of Novorossiisk in February, reported today's Journal of Commerce. Azerbaijan's state oil company SOCAR vice-president Ilgam ALIYEV said on Monday that his company had received a letter from Transneft stating the agreements between the two countries signed in 1996 concerned only oil from the territory under contract to the Azerbaijan International Operating Co. (AIOC) and not production from SOCAR. ALIYEV maintains the Transneft move is "unexpected and groundless." SOCAR had planned to transport 30,000 metric tons of crude through Russia this month, and 40,000 metric tons in March.

Kazakhstan to Hold Gold Tender

· Kazakhstan will hold a tender on February 21 for a 90 percent stake in the state gold and diamond mining company Altynalmaz, reported Reuters. The stake has been valued at 77 million tenge, said an Altynalmaz official, who declined to be identified. The tender winner must also invest $82 million in the

enterprise. Bids will be accepted until February 18.

Most mines belonging to Altynalmaz have already been sold off, and this tender will involve mainly buildings and machinery. Altynalmaz owned the biggest mines in the country, including the Vasilkovskoye and Yubileinoye deposits. The Kazakh government last month rejected a proposal by Teck Corp. and First Dynasty Mines to develop the Vasilkovskoye deposits.

USAID Conference in Central Asia

· A Trade and Investments conference on the economic development of the former Soviet Central Asia region opened in Ashgabat today, reported Itar-Tass. The conference, which was organized by the US Agency for International Development (USAID) and the Turkmenistan Trade Ministry, has attracted USAID specialists and government representatives from Turkmenistan, Uzbekistan, Tajikistan, Kyrgyzstan, and Kazakhstan.

The principal aim of the conference is to find acceptable approaches to the creation of a stable, competitive, and strong legal environment, favorable for the development of trade and investments.

Updates

Chechnya: Russian Federation Council (upper house of parliament) chairman Yegor Stroyev today invited newly-elected Chechen president Aslan Maskhadov to take his seat as a member of the chamber, but MASKHADOV reportedly plans to refuse. Russian regional administration and legislative heads are automatically granted membership in the 172_member Council.

MASKHADOV has said, however, that he considers Chechnya to be an independent state and so will not serve in Moscow. A source close to Maskhadov told Interfax "there can be no talk" of his attending the upcoming Council session, adding that, "The Chechens did not fight for two years to sit in the Federation Council of Russia."

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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