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 6, 1997

Russian Federation

Politics

Russia OKs, US Rejects, Chirac Proposal

· A French proposal for a five-power summit in Paris discuss future relations between Russia and NATO has been rejected by US officials, but tentatively accepted by Russia. France's President suggested holding in April a meeting of leaders of Russia, the US, France, Germany, and Britain to discuss European security arrangements before the July NATO summit in Madrid.

The Russian presidential spokesman said Russia would consider participation, if there was "thorough preparation" for such meeting so that "concrete" results could be achieved. However, the US State Department indicated that the US did not feel such a meeting, which excludes several NATO members, would be productive.

New Twist on NATO Expansion Problems?

· Russian Federal Security Service head Nikolai KOVALYOV told Nezavisimaya Gazeta Wednesday that he had stunned his Western counterparts in Davos last week with his insight into possible problems that would accompany NATO's eastward expansion. KOVALYOV asked them: "Are your experts not predicting an upsurge in acts of terrorism, after the bloc expansion decision was made?"

KOVALYOV said his agency believes that a "substantial part" of the population of former Warsaw Pact nations will strongly oppose joining NATO. "So conditions can arise for protest actions, which can grow into acts of terrorism. FSB experts do not rule out such a possibility. This approach dismayed US representatives. I was told that they had no answer as yet." One can only wonder at Russia's next twist in its anti-NATO psychological warfare campaign.

Gore-Chernomyrdin Commission Opens

· The first plenary meeting of the Gore-Chernomyrdin Commission opened today in Washington. Russian Prime Minister Viktor CHERNOMYRDIN and his delegation will meet with a number of US government, banking, and business representatives, including President Bill CLINTON, today and tomorrow, and then travel to Chicago. The Commission focuses on trade and economic cooperation, but high-level talks will also be held on the upcoming CLINTON-YELTSIN summit and NATO's planned eastward expansion.

One possibly contentious issue is Russian delays in implementing their part of the international space station project. Russia has been lagging behind in the building of a crucial component of the project, claiming funding problems, leading some in the US to suggest that Russia is unable to deliver its planned contribution. The Russian side has insisted that it can and will participate fully in the project.

Economy

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

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

Ruble = 5,635|5,645/$1.00 (buy|sell rates)

Germany Reschedules Russian Debt

· Russian Finance Minister Aleksandr Livshits and his German counterpart Theo Waigel today signed an agreement in Bonn to reschedule

Today's News Highlights

Russia

Lloyd's to Insure Gazprom

Metals Exploration Down

Japanese Credits for Timber

US SBA Meets Russians

Loan for Sakhalin-1 Partners

European Republics

Gradobank Declared Insolvent

Transcaucasia & Central Asia

Kazakh Mining Deals

Hostage Crisis in Tajikistan

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Thursday

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Intercon's Daily

Russia's $15.2 billion debt to Germany, reported Russian television. The deal is part of multilateral arrangements between Moscow and the Paris Club. The debt to Germany accounts for 40 percent of the total owed to the Paris Club.

Meanwhile in Washington, US Deputy Treasury Secretary Lawrence SUMMERS said that Russia and the US would initial a $2.3 billion Paris Club debt-rescheduling agreement today, reported Dow Jones. On Friday, the International Monetary Fund (IMF) is expected to approve the release of a $340 million tranche of a $10.2 billion loan to Russia.

Pursuit of Tax Delinquents Continues

· Russia's Federal Bankruptcy Agency will continue its crackdown on corporate tax delinquents this month as it examines the cases of 34 major debtors, reported Interfax. All told, the companies owe the government 2.5 million rubles ($444 million). Sources close to the commission indicate that likely targets include engineering firm Izhora Works, nickel producer Severonikel, crude oil producers Noyabrskneftegaz and Chernogorneft, power utility Komienergo, the Mendeleyev oil refinery, Pavlovo bus factory, and Izhmash. Companies investigated by the agency can be declared bankrupt and have their assets seized by the government, or be restructured and placed in the hands of trustees with six months to repay outstanding taxes.

Lloyd's to Insure Gazprom Pipelines

· Lloyd's of London will insure the extensive and crumbling network of pipelines owned by Russian gas monopoly Gazprom, reported today's Financial Times. The thousands of kilometers of pipelines carrying Russian natural gas to markets in Western Europe frequently leak. Gazprom can not afford to keep up with repairs and maintenance on the network properly, but it is concerned with the financial impact of frequent leaks and the insurance contract is designed to protect it against commercial loss.

Metals Exploration Efforts Insufficient

· Russian Natural Resources Minister Viktor ORLOV said today that Russia needs to identify new mineral reserves to match the depletion rate of its known reserves, reported Interfax. ORLOV said that new nickel reserves discovered in 1996 were only equivalent to 15 percent of the year's production.

The rate for copper was 18 percent, wolframite was 21 percent, and tin was 28 percent. Lead and zinc were 37 percent. The problem, according to ORLOV, was low government spending on natural resources exploration since 1994.

Japanese Credits for Timber Project

· A group of Japanese companies will extend a $100 million loan to Russia for a large-scale forestry development project in the Far East, reported Itar-Tass. In a preliminary agreement between 11 Japanese trading firms and Russian lumber export enterprises, the Russian side pledged to deliver three million cubic meters of timber to Japan within five years to pay back the loan. Japanese engineering giant Komatsu will ship the machinery for the project. A final agreement on the project is to be signed in Tokyo in March during a meeting of the Russian-Japan intergovernmental commission.

Business

VimpelCom Gets License for Kaluga Region

· Private Russian telecommunications firm VimpelCom has received a license from the Russian Communications Ministry to provide cellular phone service in the Kaluga Oblast, located southwest of Moscow, reported M2 Communications. The company has already made plans to set up cellular infrastructure in the region and expects it to be operational by the middle of 1998. VimpelCom holds telecommunications licenses to operate several Russian regions including Moscow, Samara, Tver, Vladimir, Novgorod, Ryazan, and Leningrad.

US SBA Meets Russian Representatives

· The US Small Business Administration (SBA) and its Russian counterpart met in their first joint working group session on Wednesday with banking and technology issues topping the agenda, said an SBA press release. The meeting, which included more than 30 US and Russian government and private sector representatives, was held at SBA's headquarters one day prior to the Gore-Chernomyrdin Commission meeting.

SBA Administrator Philip Lader and his Russian counterpart Chairman Vyacheslav Prokhorov discussed progress achieved in 1996 and efforts underway in 1997 to develop and expand opportu

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nities for American and Russian entrepreneurs. "Only a year ago, SBA first entered into an historic agreement with the newly-created Russian State Committee for the Support and Development of Small Business.... Through an improved partnership between the US and Russian commercial banking sectors, as well as greater emphasis on using technology as a bridge to Russia, we will achieve our goals for 1997 and beyond," said Lader.

The small business working group adopted an action plan for 1997 which was presented to Lader and Prokhorov.

The main features of the plan include: increased cooperation between US and Russian commercial banks; a proposed small-business "matchmaking" conference to be held in Houston, Texas, in June 1997 to partner US and Russian small businesses; creation of an integrated information system utilizing Internet technology between the SBA and its Russian counterpart on small-business programs and opportunities in the US and Russia; a study to address areas of future trade cooperation between small businesses in the US and Russia, with an emphasis on the identification of priority sectors and regions; and training programs through intergovernmental exchanges.

In the US, more than 22 million businesses employ more than half of the private workforce and account for more than 50 percent of annual sales receipts. In Russia, nearly one million small businesses produce 12 percent of GDP.

Sakhalin-1 Russians to Receive Credits

· The Russian participants in the Sakhalin-1 oil project have sign an agreement with Dutch bank ABN-AMRO and French bank Lazard Freres & Cie on a $13 billion loan to finance the development of offshore oil reserves near Russia's far eastern Sakhalin Island, reported Wednesday's OMRI, citing the Russian press. Rosneft, which holds a 17 percent stake in the project, and Sakhalinmorneftegaz (23 percent) will receive the loan, $8 billion of which will come from ABN-AMRO.

Japanese consortium SODECO and US Exxon each hold a 30 percent equity stake in the Sakhalin-1 oil development project.

European Republics

Sweden's AGA Buys into Ukr. Co.

· Swedish industrial gas company AGA AB has purchased a majority stake in Ukraine's largest industrial gases company Dneprokisen, reported Dow Jones today. Dneprokisen has a yearly turnover of around $6 million and the company is operating mainly around the eastern city of Dnepropetrovsk, said a press release.

Ukraine Gradobank Declared Insolvent

· Ukraine's Gradobank, one of the banks in charge of disbursing German money to compensate victims of the Nazis, has been declared insolvent, reported Wednesday's OMRI. The bank still owed DM117 million ($72.5 million) and the Ukrainian government will meet on Friday to decide how to handle the payment problems. Since 1993, Germany has paid DM400 million in compensations ranging from DM 400 to DM 1,900 to about 541,000 Nazi victims. But some 20 percent of those eligible have not yet received compensation.

South Caucasus & Central Asia

Shevardnadze in France

· Georgian President Eduard Shevardnadze concluded a three day official visit to France on Wednesday. He met with his French counterpart Jacques Chirac, signed a number of cooperation agreements with French Foreign Minister Herve de CHARETTE, and discussed investment opportunities with French enterprise leaders. SHEVARDNADZE said in Paris that his country does not intend to seek membership in NATO, but is moving toward joining the European Union.

CHIRAC on Tuesday promised that France will support Georgia's candidacy for membership of the Council of Europe, reported Xinhua. Chirac said that the Caucasus region, which includes Georgia, Armenia, and Azerbaijan, "belongs to European space." He said that although the region is having some difficulties, "it has already proved that it can profoundly change things."

KazMinCo Increases JV Stake

· The UKKazakh joint venture Kazakhstan Minerals Co. (KazMinCo) said Wednesday that it

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has revised a previously announced agreement with joint venture partner Asier, to increase its shareholding in five KazMinCo-Asier joint ventures to 86 percent from 80 percent, reported Dow Jones. KazMinCo also said it had agreed to increase its holding in a sixth joint venture with Asier, the Samarskoye venture, to 84.5 percent.

In November 1996, KazMinCo entered into an agreement with Asier to increase its shareholding in all KazMinCo-Asier ventures to 80 percent for $1 million in cash and 500,000 common shares. KazMinCo will not give Asier an additional 450,000 shares in consideration for the increased interests.

Canada Mining Co. in Kazakh Venture

· Canadian mining concern Aranlee Resources Ltd. announced on Wednesday the acquisition of a large land position in a highly prospective precious/base metal district in central Kazakhstan, said a company press release. Aranlee has executed a Letter of Intent with UK-Kazakh joint venture Kazakhstan Minerals Corporation (KazMinCo) to acquire 100 percent of KazMinCo's interest in the Kazakhstan-registered company, Agadir.

KazMinCo, through its wholly-owned subsidiary Almaty Exploration Limited, owns a 67 percent interest in Agadir, with the remaining 33 percent interest being held by the KazMinCo partner company Temenai. Aranlee has a first right of refusal to acquire this remaining 33 percent interest.

The assets of Agadir consist of 10 mineral properties totaling approximately 9,700 sq. km within the Agadyr Exploration License and a pending application for the approximately 2,000 sq. km Balkash Exploration License. The two Licenses containing the properties are in central Kazakhstan, approximately 600 km northwest of Almaty. The infrastructure is excellent, with a main highway, rail line, and high voltage power lines from Almaty to the regional center of Karaganda crossing both Licenses.

The properties cover large and highly prospective areas for gold, silver, copper, and other base metals and have the potential for discovery of world class deposits, as demonstrated by the large Miedny Kounrad porphyry copper deposit, located just outside of the Balkhash License.

Hostage Crisis in Tajikistan

· This week, Tajik rebel forces took 15 hostages in four separate incidents, demanding that a rebel commander and his troops be allowed to cross the border from Afghanistan to Tajikistan in exchange for the captives safe return. On Tuesday, fighters loyal to Tajik field commander Bakhrom Sadirov seized five members of a UN peacekeeping mission. They demanded that SADIROV's brother and his 140 fighters be let into Tajikistan.

On Wednesday, the same rebels took captive two Red Cross workers and four Russian journalists near the village of Obi-Garm, 80 km northeast of Dushanbe. They seized a Briton and a Tajik with the Red Cross, as well as an Itar-Tass and an Interfax correspondent and two journalists from NTV television, who had traveled to southern Tajikistan to investigate the kidnapping of the UN observers.

Today, the rebels seized four more UN workers, three Tajiks and a Nigerian, who worked for the UN High Commissioner on Refugees in Dushanbe. Tajik government representatives are negotiating for the release of the hostages and reports say they could be release as early as tonight. Last December, rebels loyal to SADIROV seized 23 people, including seven UN observers. All but two of the hostages were released the next day.

The mission of the International Red Cross Society in Tajikistan decided today to suspend its work indefinitely and to transfer its remaining 38 staff members to neighboring Uzbekistan. The Red Cross pulled its workers out of Chechnya last month after six of them were murdered in their sleep.

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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