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

Friday, February 7, 1997

Russian Federation

Politics

Clinton-Yeltsin Summit Date Set

· US President Bill CLINTON and his Russian counterpart Boris YELTSIN will hold a summit meeting March 20-21 in Helsinki, Finland. This was announced by US Vice-President GORE and Russian Prime Minister CHERNOMYRDIN in Washington today. The summit was originally planned to be held in the US, but the venue was moved closer to Russia to conserve YELTSIN's fragile health.

Main Issues of Gore-Chernomyrdin Mtg.

· Talks in Washington between Russian and US officials as part of the GORE-CHERNOMYRDIN Commission meeting continued today and 10 cooperation agreements on space and medical research and financing were signed. The US side has several major bilateral trade issues that it is pushing with the Russians, promising increased US investment and assistance in joining the World Trade Organization (WTO) as incentives for cooperation.

GORE will press the Russian government to reduce tariffs on semiconductors and aircraft, as well as broach the subject of Russia's market barriers on imports of automobiles and pharmaceuticals. The US wants Russia to ratify a bilateral investment treaty that was approved by the US Congress two years ago. It also wants Russian to change certain existing laws, including its protection of intellectual property rights and its tax system. The US is also calling for the enactment of two amendments to the country's production-sharing law.

US investment accounts for about $3 billion out of a total of $9 billion of foreign investment in Russia, US ombudsman for energy and commercial cooperation, Jan KALICKI, told Dow Jones.

Communists Split in the Duma

· A group of mostly Communist State Duma deputies announced on Thursday the creation of a new bloc within the parliament, to be called the Russian Industrial Union, reported today's Kommersant-Daily. Deputies Ivan Anichkin, Vyacheslav Zvolinsky, and Leonid Kanayev held a press conference to announce the new group which is aiming for "less politics, more professionalism."

They said that the Russian Industrial Union arose out of discontent among individual deputies from various factions and deputies groups with the over-politicization of the State Duma. The new group currently has 20 members. For the group to become a full-fledged parliamentary faction, it will need to attract a total of 35 deputies. The group believes that if Russia is to overcome the current economic crisis, it is critical to revitalize Russia's industry, and so the industrialists, like the agrarians, should "have an influential representation in the Duma, capable of upholding their interests," said Kommersant-Daily.

Tula By-Election Circus Ends Sunday

· Voters in the central Russian Tula region on Sunday will choose from a field 11 colorful candidates to fill a seat in the State Duma, left empty when Aleksandr LEBED joined the YELTSIN administration as Security Council chief last summer. Opinion polls suggest that only three candidates have a chance of winning the race—Aleksandr KORZHAKOV, the former head of the presidential bodyguards; Anatoly

Today's News Highlights

Russia

Ruble Chart

Vodka Prod. Down in 1996

Insurance Co. in Trouble?

Russian-CIS Trade in 1996

James River to Build Factory

Ben & Jerry's Pulls Out

Director for Archangel Diamond

European Republics

FCC Telecom Handbook for NIS

More $ in '98 US Budget for NIS

Politics-Economics-Business

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Friday

February 7, 1997

Intercon's Daily

Ruble = 5,634/$1.00 (NY rate)

Ruble = 5,642/$1.00 (CB rate)

Ruble = 5,637|5,647/$1.00 (buy|sell rates)

Economy

Vodka Production Down in 1996

· Russia produced 709 million liters (190 million gallons) of vodka last year, a 42 percent drop from output in 1995, reported Interfax today. "Under-financed and overtaxed" distilleries could not compete with cheap imports and domestic bootleggers, said industry representatives. They estimated that four-fifths of the market has been captured by illicit, underground producers who are able to undercut licensed distilleries.

The Russian government recently introduced a licensing system for producers and importers to try to help official domestic producers, but the new system has run into problems. The government created an excise stamp to be affixed to bottles of legally-produced vodka, but has not printed enough stamps or distributed sufficient automatic stamp applicators. In late December, the state mint Goznak printed and distributed 150 million stamps to domestic distilleries, enough to last only 20 days, said Interfax.

Russian Insurance Co. in Trouble?

· Officials of Russia's biggest private insurance company, Asko, are struggling to refute press reports that it can't meet its obligations to policyholders, while admitting that the company is experiencing some problems, reported Thursday's Journal of Commerce. Asko spokeswoman Irina RASGONOVA told the paper that an ongoing audit of claims payments had turned up some irregularities and that payments of new claims will be delayed while the audit of already-paid claims is being completed.

But RASGONOVA denied a report in Kommersant that suggested Asko policyholders were in danger of losing their insurance coverage and investments. Kommersant estimated that 600 of Asko's clients and eight billion rubles ($1.5 million) in claims have been held up. Asko has a total of about 32,000 policyholders, it said.

Asko was founded in 1988 as the first nongovernmental insurer in Russia. It operates a network of 450 branches through 70 affiliated companies in Russia's regions. Asko is controlled by Suprimexbank, which holds 75 percent of the outstanding stock and acts as trustee for other shareholders.

Sep Oct Nov Dec Jan Feb

KARPOV, a former world chess champion; and Eduard PASHCHENKO, who works at the Legislative Initiative Support Fund in Tula Oblast, according to RIA Novosti.

Another candidate and the one who has probably attracted the most attention in the region is Yelena MAVRODI, a 27-year-old model. The wife of Sergei MAVRODI, head of Russia's most catastrophic pyramid scheme, she openly offered 3,000 rubles (about 50 cents) to anyone who would support her, promising that a more substantial reward would follow, were she to be elected. Long lines were reported at her campaign headquarters, but her financial machinations seem to have gotten her into trouble.

The Tula Oblast Court has found "a gross violation in forming her election fund" and the regional electoral commission has asked the court to rescind her registration to run, reported RIA Novosti. A decision is expected tonight or Saturday morning.

KORZHAKOV, the anti-establishment candidate, has been campaigning long and hard and received a limited endorsement from LEBED. KARPOV got a late start on campaigning and has not been backed by the democratic organizations in Tula, as was expected. Surprisingly, however, he is supported by some Communist leaders, including Gennady ZYUGANOV and Nikolai RYZHKOV. PASHCHENKO has the distinction of actually being a local resident.

When you need to know it as it happens

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Friday

February 7, 1997

Intercon's Daily

CIS Supplies Bulk of Russian Food

· The Commonwealth of Independent States (CIS) has become Russia's main food supplier, accounting for over half of imports in some foods, reported Prime-Tass, citing sources at the Russian Trade Ministry. CIS countries account for more than 50 percent of Russian imports of grain, sunflower oil, white sugar, beverages, cotton, ferrous metals, and pipes. The CIS share in Russia's imports amounted to 31 percent, or $14.1 billion in 1996. Ministry experts predict that in 1997 imports from CIS countries will continue to rise, whereas imports from outside the former Soviet Union will fall.

Russian exports to the CIS reached $15.7 billion in 1996, or 18 percent of total exports. Russian exports to the CIS were mainly fuel and energy (48.8 percent of total exports), with natural gas alone accounting for 34.9 percent of exports. Ukraine was Russia's main trading partner in 1996. The trade turnover between the two countries totaled $13.9 billion, or 10.7 percent of Russia's foreign trade. Russia's trade turnover with Belarus and Kazakhstan was $5.9 billion and $5.6 billion, respectively.

Business

James River to Open Russia Factory

· Richmond, VA-based James River Corporation announced on Thursday that it will increase its presence in the Russian market by opening a tissue converting plant outside of Moscow, said a company press release. The company has signed a long-term lease agreement for the site, and it is expected that the converting lines, which are being relocated from other European plants, will be operational in the fall of 1997.

In 1994, James River began exporting tissue products to Russia from its Finnish manufacturing facilities, and in 1995, the company opened a Moscow sales office for the distribution of its Lotus brand of towel and tissue products. The new converting facility will not only increase Russian sales volumes, but should allow James River to reduce transportation costs and import tariffs and to adapt its products to better match local customer preferences.

Parent rolls of tissue, manufactured at James River's facility in Nokia, Finland, will be sent to the Moscow site for converting into finished products. The con

verting plant will initially include two bathroom tissue and two napkin converting lines and will employ approximately 30 people.

"Today, James River is widely seen as the only systematically operating tissue marketer in Russia," said John F. Lundgren, president of the company's European Consumer Products Business. "This new converting facility creates an added platform for serving a market with enormous growth potential. While the per capita consumption of tissue products by Russia's 150 million people is currently low, it is expected to expand significantly with the growth of their economy."

Ben & Jerry Pull Out of Russia

· Some five years after beginning its "social mission" in Russia, Vermont-based Ben & Jerry's Homemade Inc. is pulling out of a joint venture in northern Russia's Karelia region, calling it too big a stretch for the small company, reported today's Wall Street Journal. The company is rethinking a production and sales joint venture, begun in 1992, in part because of the normal tax, legal, and management problems that afflict most investors in Russia. Ben & Jerry's has lost less than $500,000 in the venture so far and the main reason for the pullout is its drain on the company's time and energy.

"We simply don't have the people and the resources to run a business in Russia," Bram KLEPPNER, Ben & Jerry's manager of Russian operations told the WSJ. "We're a small company. You tie up two or three senior managers and you end up having a measurable effect on the company's performance."

Ben & Jerry's began the joint venture, Iceverk, in large part to prove that high-quality ice-cream could be made by Russian employees using mostly local ingredients. The ice-cream was a big hit, particularly in Karelia, but the venture's trials and tribulations with the Russian tax, legal, and distribution systems grew along with its expansion and commercial success. For instance, a local bank, PetroBank, successfully sued Ben & Jerry's for the return of a 20 percent stake that the US partner insisted it had legally bought back, according to WSJ.

Ben & Jerry's has turned over its 70 percent equity stake in the venture to a third partner, the city of Petrozavodsk, Karelia's capital, said KLEPPNER.

When you need to know it as it happens

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Intercon's Daily

The venture will continue to make and sell ice-cream, only under a new trademark.

Archangel Diamond Co. Gets New Director

· Canada's Archangel Diamond Corporation announced on Thursday the appointment of Dr. Sergei Rogov as a Director and as Chairman of the newly-formed Government Relations Committee, said a company press release. Dr. Rogov has been Director of Russia's USA-Canada Institute since 1995. He has a long association with the Institute, which is part of the Russian Academy of Sciences.

Dr. Rogov is also a consultant to the Russian Defense Council and a member of the Advisory Boards of the Russian Security Council and the Foreign Ministry. He is also an advisor to the Chairman of the Foreign Relations Committee of the Russian Duma and the Duma Defense Committee. His input is expected to be especially valuable in enabling the company to better understand business and regulatory issues and conditions in Russia.

"Dr. Rogov's participation in the Company will enhance Archangel Diamond Corporation's ability to conduct itself as a responsible and valued participant in the modern Russian business world," said Franco Boulle, Chairman and CEO of Archangel. Dr. Rogov will take the Board seat vacated by Peter Fischl, who resigned as company director.

Archangel has joint venture interests in two diamond-mining projects in the Arkhangelsk Oblast of northwestern Russia. Both of these projects, Verkhotina and Windy Ridge, are situated near the Lomonosova deposit, which has estimated in situ reserves valued at $35 billion, making it the third richest deposit in the world.

European & Asian Republics

FCC Handbook on NIS Telecoms

· The US Federal Communications Commission's (FCC) International Bureau is putting its handbook

on procedures for certification of telecommunications equipment in the New Independent States (NIS) and the Baltics online, reported Newsbytes on Thursday. The handbook, available at the International Bureau's home page at http://www.fcc.gov/ib/td/md/nis/ on the World Wide Web, is a cooperative effort of the communications ministries in the NIS and the Baltics, working with FCC representatives.

The handbook, a product of short-term project funding from the US Trade and Development Agency (TDA), is designed to provide useful information to US companies interested in certification of telecommunications equipment in the New Independent States. The home page listing contains country-by-country certification procedures that US manufacturers must follow to sell telecommunications equipment in the region.

A second part of the handbook, prepared at the request of the participating ministries, is a description of the international experience with equipment certification, including manufacturer Declarations of Conformity, mutual acceptance of test data, and harmonized technical requirements.

The participating NIS and Baltic countries are: Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.

More for NIS in US 1998 Budget Plan

· US President Bill Clinton is asking Congress for $19.5 billion to fund foreign affairs programs in 1998, including increased aid for former Soviet republics. The new budget nearly doubles assistance to Russia to $241 million and provides an assistance package of $900 million to 12 former Soviet republics, an increase of $275 million.

The 1998 budget for the State Department includes more than $500 million for a new "Partnership for Freedom" program to promote trade and fight crime in the former Soviet Union.

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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