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

Monday, March 10, 1997

Reaction to Chubais Appointment

· Anatoly CHUBAIS elicits a strong response from nearly everyone because of his key role in early Russian economic reform efforts. He is admired and respected by many Russian reformers, international aid agency representatives, and Western governments, but provokes deep hatred among opposition politicians as well as many ordinary Russians. As the architect of Russian mass privatization, he is lauded as leading Russia through a key early period of market reform, and hated for selling off state enterprises cheaply and conducting difficult economic reforms that impoverished many Russians.

Therefore, his appointment has provoked both hope and horror. Foreign investors may see his inclusion in the government as a positive sign of accelerated and serious reforms to come, while opposition parliamentarians predict that he will cause the further deterioration of the Russian economy and degradation of the Russian people.

Former Prime Minister Yegor GAIDAR believes that CHUBAIS' return "has increased the likelihood that the government will prove capable of implementing thoughtful reforms," according to today's Financial Times. "The absence of Mr. CHUBAIS from the government very seriously affected the Cabinet's ability to conduct thought-through economic policies of any sort."

Russian Economics Minister Yevgeny Yasin said that with the appointment of Chubais' to the Cabinet, "Yeltsin

Russian Federation

Politics

Chubais Rejoins Russian Government

· Russian President Boris Yeltsin on Friday appointed Anatoly Chubais to the post of First Deputy Prime Minister, said the presidential press service. CHUBAIS, 41, served as a first deputy prime minister during 1994-1996 and as chairman of the Russian State Property Committee from 1991-94. In 1996, he served as YELTSIN's campaign manager, masterminding the president's re-election.

He told Interfax on Friday that he was returning to his old job "with a full understanding of the difficulties that face the country." His main goals will be to pay off back wages and pensions, push forward tax reform and improve tax collection, break up the so-called natural monopolies, and bring about growth in the Russian economy.

More government changes are expected in the next few days. Following the reshuffle, CHUBAIS is expected to be the only first deputy prime minister in the government, as the current three first deputies—Vladimir POTANIN, Viktor ILYUSHIN, and Aleksei BOLSHAKOV—will either be removed or demoted, according to Kremlin sources, cited by today's Wall Street Journal.

Ministerial portfolios have reportedly been offered to five members of the liberal Yabloko faction in the State Duma. Yabloko leader Grigory YAVLINSKY, however, has said that his party members would refuse to join the government while Viktor CHERNOMYRDIN was premier. YAVLINSKY told Interfax that the present economic strategy "has led us into the current blind alley" and only radical changes to the federal budget and market reform strategy would prompt him to join the government.

Today's News Highlights

Russia

KGB Consolidation Planned

Another Primakov-Solana Mtg.

Monopolies Regulation Planned

Russia-Turkey Gas Pipeline

Russia-Europe Oil Pipeline

European Republics

Ukraine-NATO Relations Moving

South Caucasus & Central Asia

Armenian Premier Resigns

Tajik Military Protocol Signed

Politics-Economics-Business

Page

Monday

March 10, 1997

Intercon's Daily

thereby manifested his striving to go ahead with reforms in Russia," reported Itar-Tass. "As a person, who closely worked with Chubais, I am gratified with his coming back to the government. I am confident that he will contribute to improving government activities," said Yasin.

US State Department spokesman Nicholas BURNS said that CHUBAIS is "a very talented, very tough advocate of Russian national interests and we respect and look forward to working with him," according to the Voice of America (VOA).

Russian Communist Party leader Gennady ZYUGANOV said on Friday of CHUBAIS' appointment: "If he appears in government, this will not only be a slap in the face of the State Duma and all the citizens of the country who have been robbed during privatization, but it will also lead to the further criminalization of power," according to the weekend Financial Times.

Communist Party deputy chairman Valentin KUPTSOV said that the appointment was "more than negative, and more than unacceptable for the opposition...the name of CHUBAIS for us has become simply a swear word," reported today's Financial Times.

Prior to CHUBAIS' appointment on Friday, the national-patriotic bloc in parliament threatened to hold a no-confidence vote in the government if he were given a Cabinet post. In the event that such a vote was held and succeeded, it would seem more likely that President Boris YELTSIN would dissolve the parliament than his government.

Security Services Coordination Center Planned

· Kremlin staff are in the process of preparing a presidential decree on the creation of some kind of central authority to coordinate the activities of the security agencies that formerly made up the KGB, reported Obshchaya Gazeta (No. 9). The coordination center, which would oversee the Federal Security Service (FSB), Foreign Intelligence Service (SVR), Federal Government Communications and Information Agency (FAPSI), and the Federal Border Service, would be headed by someone close to the presidential chief-of-staff, according to Obshchaya Gazeta sources. This suggests that the security services' centralization effort is being spearheaded

by Anatoly CHUBAIS as a counterbalance to the promotion of Interior Minister Anatoly Kulikov to deputy prime minister in charge of the tax police, customs service, and other enforcement agencies.

The newspaper suggests that deputy presidential administration head Yevgeny Savostyanov, the former head of the FSB Moscow branch, is the most likely candidate to head the new coordination center. In addition, the creation of such a center is expected to bring about a reshuffling of the leadership of the security services. According to Intercon's information, former FSB Moscow branch head Anatoly Trofimov was dismissed last month not because of drug trafficking by his subordinates, but as a result of his ties to former presidential bodyguards head Aleksandr KORZHAKOV. A purge of KORZHAKOV allies still working in the Kremlin has been going on for the last few weeks (the latest casualty was Dmitri SAMARIN, YELTSIN's personal cook), and its continuation would likely bring about the removal of current FSB head Nikolai KOVALYOV.

Another Round of NATO-Russia Talks Held

· Russian Foreign Minister Yevgeny Primakov and NATO Secretary-General Javier Solana today concluded a third round of consultations on NATO's planned eastward expansion and a new Russian-NATO relationship. Differences of opinion over a number of issues remain, but positive work was done during the talks, said a Russian Foreign Ministry statement. A statement issued by NATO headquarters in Brussels said: "The negotiations are proceeding positively. Both sides are attempting to bring their positions closer and will continue their discussions."

Indian Premier to Visit Russia

· Indian Prime Minister H.D. Deve GOWDA will make his first official visit to Moscow to meet with President Boris YELTSIN on March 24-26, reported Reuters, citing an Indian government spokesman. He will discuss a controversial nuclear power plant project in southern India and other bilateral issues.

Economy

Ruble = 5,683/$1.00 (NY rate)

Government Completes Monopolies Policy

· The Russian government has approved a pro

When you need to know it as it happens

Politics-Economics-Business

Page

Monday

March 10, 1997

Intercon's Daily

RUSSIA SHORT TAKES

In 1997, Russia's largest automaker AvtoVAZ manufactured 15,000 vehicles with defects in the steering mechanism, reported Interfax. According to plant management, the company supplying one of the parts for the mechanism changed the type of steel used without notifying Avtovaz. Avtovaz's quality control department didn't catch the change, but it did not escape the notice of new car owners.

According to official statistics, total Russian aluminum output rose from 2.79 million tons in 1995 to 2.87 million tons in 1996.

The AIDS epidemic is in full swing in Russia, said Vadim Pokrovsky, head of the Russian AIDS-Fighting Center. Experts predict that Russia will have some one million people infected with HIV by the year 2000, he said. While there are currently about 3,000 infected people in Russia, the number of HIV virus patients is expected to reach 15,000 by the end of the year, while some estimates put that number at 150,000.

Russian industry must attract up to 3.6 trillion rubles in annual investment by the year 2000 if it is to manufacture competitive consumer goods and textiles, said Deputy Industry Minister Gregory Napolov. In 1996, the sector received only 140 billion rubles worth of investment.

The leadership of Russia's Vnukovo airlines announced last week that the company does not plan to buy foreign-made planes either now or in future as it is satisfied with Russian aircraft. The company's fleet comprises 56 aircraft, including 22 IL_86, 29 TU_154, three TU_204, and two TU_134. This year it plans to lease six or eight TU_204 aircraft and two or three YAK_42 planes.

In 1996, Vnukovo airlines transported about two million passengers, and it expects to increase passenger traffic by 10 percent in 1997.

As of March 31, Germany's Lufthansa airlines will begin regular twice-weekly service from Frankfurt to the Russian Urals city of Perm with a stopover in Kazan, the capital of the Republic of Tatarstan. Lufthansa will be the first West European company to provide flights to these cities from Europe.

gram to regulate the prices charged by the country's "natural" monopolies, including the state natural gas, electricity, and railway companies, reported Interfax on Thursday. The program, drafted by the Economics Ministry, includes price and tariff regulation mechanisms. The government also plans to tighten its control over the monopolies' investment programs and financial operations in an effort to improve tax collection. Restructuring the monopolies and bringing up tax revenues are two of the main conditions set by the International Monetary Fund (IMF) for receipt of a $10 billion credit.

St. Petersburg Out of Olympic Running

· The Russian city of St. Petersburg failed to get on the short list of five cities bidding to host the 2004 Summer Olympic Games. First Deputy Prime Minister Viktor Ilyushin, who led the Russian delegation to address the International Olympic Committee selection panel in Lausanne, told Itar-Tass that the "instability of the situation in the country" was the probable cause for St. Petersburg being removed from the running for Olympic host.

Russian-Turkish Gas Study Progressing

· Turkish state oil and gas company Botas and Russian gas monopoly Gazprom will complete their respective feasibility studies on construction of a gas pipeline between Russia and Turkey by June, reported Reuters. Gazprom has entered into a joint venture with Dutch firm Heerema to oversee its part of the study. The pipeline proposal calls for building a triple pipeline, about 1,200 km long, from Izobilnoye, 100 km east of the southern Russian city of Krasnodar, to the Turkish capital Ankara. The pipeline will include a 440-km section passing under the Black Sea from the Russian port of Tuapse to the Turkish port of Samsum.

New Russian Oil Pipeline Planned

· Russian oil companies are considering building a new 250-km eastern branch of the Perm-Saratov-Novorossiisk pipeline that will avoid Ukrainian territory, reported OMRI last week. Russian firms must pay Ukraine $2.50 for each metric ton of oil transiting the Dnepr pipeline, which runs to the Russian port of Novorossiisk. In 1996, Russian paid Ukraine $200 million in oil transit fees, $75 million on the Dnepr line and $175 million on the Druzhba line which carries oil to Slovakia and western Europe.

When you need to know it as it happens

Politics-Economics-Business

Page

Monday

March 10, 1997

Intercon's Daily

European Republics

NATO-Ukraine Relations Progressing

· US Secretary of State Madeleine Albright said she expects NATO and Ukraine to conclude negotiations on a special relationship before the Madrid summit in July, according to a statement released by the State Department. Albright met with Ukrainian Foreign Minister Gennady Udovenko in Washington over the weekend.

Former US Intell. Officer at Lith. Interior

· A former US Air Force foreign intelligence officer, retired Colonel Romas Kilikauskas, has been appointed to the post of Lithuanian Deputy Interior Minister, reported Itar-Tass. Kilikauskas was born in the Lithuanian city of Jurbarkas in 1936. Later, he emigrated together with his parents to the US where he graduated from three military academies, including the military intelligence academy. He retired from the US Air Force in 1992. Kilikauskas worked as a consultant at the US Embassy in Vilnius in 1992-1994. He will be responsible for the operations of border services and the protection of the state border at the Interior Ministry.

Kilikauskas is the second US citizen of Lithuanian extraction to occupy the post of Deputy Interior Minister. Former US Army Colonel Julius Adomaitis was appointed to a similar post in December 1996.

South Caucasus & Central Asia

Armenian PM Resigns for Health Reasons

· Armenian Prime Minister Armen Sarkisyan has tendered his resignation to President Levon Ter-Petrosyan on the grounds of poor health, reported Itar-Tass on Friday. SARKISYAN has been in the hospital in London for the last month. He has not disclosed the nature of his ailment, but said he must remain under medical supervision and needs intensive treatment. The 44-year-old Sarkisyan, who was appointed premier on November 1996, said he had submitted his resignation last Wednesday.

Georgia Wants Part of Black Sea Fleet

· Georgia intends to lay claim to its share of the former Soviet Black Sea Fleet, said Georgian President Eduard Shevardnadze in his weekly radio address today. Georgia is asking Russia for the return of Black Sea Fleet ships that were formerly based in the Georgian port of Poti. SHEVARDNADZE said that Russia had withdrawn the ships from Poti without consulting Georgian authorities, calling the move "unfair," and requesting that Russia rectify the situation.

NATO's Solana Arrives in Central Asia

· NATO Secretary-General Javier Solana arrives in Kazakhstan today for a two-day visit, and then he will move on to Kyrgyzstan, Uzbekistan, and Turkmenistan. This will be the first visit to Central Asia by a NATO chief since Manfred Woerner visited the region in 1992. A NATO spokesman said that the talks will be absolutely "transparent" and there is no secret agenda in Central Asia. SOLANA will be discussing arrangements for military exercises, to be held under NATO's Partnership for Peace program, that include the participation of the Central Asia peacekeeping battalion. The battalion was formed by Kazakhstan, Kyrgyzstan, and Uzbekistan.

Tajik Govt./Opposition Sign Mil. Agreement

· The Tajik government and the Islamic opposition signed a military protocol in Moscow Saturday in what could be a key step toward a peace settlement to the five-year-old civil war. The accord calls for merging rebel armed units with government troops.

Russia and the UN have been jointly brokering the Tajik peace talks and the agreement was signed in the presence of Russian Prime Minister Yevgeny PRIMAKOV and UN special envoy to Tajikistan Gerd MERREM. The reintegration of rebels' forces with the state military will be carried out in four stages over the next 16 months. The next round of peace talks, to be held in Tehran on April 9, will tackle political issues, including the legalization of three opposition parties, banned by the government in 1993.

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Ellen Shapiro, Managing Editor

Svetlana Korobov, Contributing Editor

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

available for non-profit institutions.

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.

When you need to know it as it happens

Politics-Economics-Business

Page