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

Wednesday, March 12, 1997

on the president and the prime minister to consult legislators on nominations for ministerial posts, reported RIA Novosti. The resolution also criticized the socio-economic policies of the current Cabinet and expressed disapproval of the appointment of Anatoly CHUBAIS to First Deputy Prime Minister.

US on Russian Government Changes

· Washington has welcomed the return of Russian President Boris YELTSIN to a more active role in governing Russia as well as the proposed major reshuffling of the Russian Cabinet. US State Department spokesman Nicholas BURNS said that YELTSIN's forceful national address last week showed that he has recovered physically and is ready to push forward needed reforms.

"President YELTSIN is back. President YELTSIN has firm control of the Russian government. The fact that he has retained Prime Minister Viktor Chernomyrdin and First Deputy Prime Anatoly Chubais means one thing. Russia continues to be headed in a reform direction," he told a press briefing.

Burns said that US President Bill CLINTON and Secretary of State Madeleine ALBRIGHT are more than ever looking forward to their two-day meeting with YELTSIN next week in Helsinki. "A resurgent, very forceful, reform-minded President Boris YELTSIN...[is] a very good thing for our agenda with Russia," said BURNS.

Duma Passes Chechen Amnesty Law

· The Russian

Russian Federation

Politics

Chernomyrdin on Russian Govt. Changes

· Russian Prime Minister Viktor Chernomyrdin told a press conference today that the appointees to new Russian government will include "professional market economy experts, [who are] firm adherents of the presidential course of reforms," according to Itar-Tass. He did not mention any names, but said that new ministers would be under 50 years old and have some experience at state administration.

"There is now every possibility to form a united and effective team of serious and responsible professionals," he said, commenting that the new government composition could be decided ahead of the seven days allowed by President Boris YELTSIN.

Boris BEREZOVSKY, the controversial deputy secretary of the Security Council and an example of the type of young, CHUBAIS-connected, reform-minded manager to be included in the new government, told today's Financial Times that Russia's current ministers of finance, defense, energy, and railways were the most likely to be dismissed.

Meanwhile, Defense Minister Igor RODIONOV has canceled another foreign engagement, deciding not to attend an international fair during March 16-20 in the United Arab Emirates, reported United Press International (UPI) today. Earlier this month, he canceled planned trips to Armenia and Georgia, increasing speculation that he will be a casualty of the coming government reshuffle.

Parliament on Russian Government Changes

· The Russian State Duma today voted 236-49, with three abstentions, to adopt a resolution calling

Today's News Highlights

Russia

New Aeroflot Director Sought

MICEX Begins Yen Trading

OPIC Loan for Sakhalin-2

Central Bank Buys Microsoft

European Republics

Protest in Belarus

Eco. Situation in Ukraine

South Caucasus & Central Asia

Georgia Parl. Head in Wash.

Amoco in on CPC Project

Politics-Economics-Business

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Wednesday

March 12, 1997

Intercon's Daily

State Duma today overwhelmingly adopted a resolution on the third reading providing amnesty those involved in the conflict in Chechnya.

The amnesty does not cover people implicated in terrorist acts against civilians, which means that it does not apply to such men as Shamil Basayev, who led a rebel raid against the southern Russian city of Budyennovsk in May 1995. The main aim of the amnesty is to gain the release of Russian prisoners of war still being held in Chechnya in exchange for Chechen detainees in Russia.

Aeroflot Chooses New Director

· The board of directors of Aeroflot-Russian International Airlines was expected to discuss today the appointment of Aeroflot First Deputy Director General Valery Okulov to replace Yevgeny Shaposhnikov as director of the airline, reported Prime-Tass. Okulov was hired by Aeroflot as a member of the managerial staff in 1994. A final decision on the appointment will be made at as yet unscheduled stockholders meeting.

Aeroflot flies to 94 countries, accounting for 70 percent of Russia's international air traffic. In 1996, Aeroflot transported 3.82 million passengers, an increase of 9.2 percent from 1995. The Russian government owns 51 percent of Aeroflot, with the remainder owned by the company's employees, which number over 14,000 people.

Shaposhnikov resigned from his post as head of Aeroflot after being named a presidential advisor on Tuesday. According to Interfax, SHAPOSHNIKOV will help oversee Russia's declining civil aviation and aerospace sectors. The news agency cited a source in the presidential administration as saying that YELTSIN was upset by the number of air accidents caused by the deterioration of aviation safety in Russia over the last few years.

Economy

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

Ruble = 5,699/$1.00 (CB rate)

Ruble = 5,691|5,707/$1.00 (buy|sell rates)

MICEX Begins Yen Trading

· The Moscow Interbank Currency Exchange (MICEX) today began trading Japanese yen, re

ported Itar-Tass. The trading involved five banks and a volume of 4.6 million yen. The yen traded at 10 to 468 rubles. MICEX official Aleksei Mamontov told Prime-Tass that the yen is the seventh hard currency to be traded at the MICEX and "it is [the yen] that heralds a stage in the formation of a slate of the world's most attractive currencies."

Mamontov said that the trading of Japanese yen could have been launched much earlier, but the MICEX was hindered by technical difficulties. The MICEX has opened a yen account at the Bank of Tokyo Mitsubishi Ltd., whose $1 trillion assets are largest in the world.

OPIC Loan for Sakhalin-2 Project

· The executive board of the Overseas Private Investment Corporation (OPIC) on Tuesday approved up to $116 million in project financing to Sakhalin Energy Investment Co., Ltd. for the development of an oil and gas project in the Russian Far East, reported Dow Jones. Sakhalin Energy is 30 percent owned by Houstonbased Marathon Oil and 20 percent by New Orleansbased McDermott International Inc.

The Sakhalin2 project calls for the development of the PiltunAstokh and Lunsk oil and gas fields off of Russia's Sakhalin Islands in the Far East. Total estimated reserves of the deposits are nearly 100 million tons of oil and over 400 billion cubic meters of natural gas. Oil from the fields will be sold in Pacific Rim markets. The cost of capital investment into the project is expected to be some $10 billion.

Business

Central Bank Buys Microsoft Software

· The Russian Central Bank has purchased 16,500 copies of US Microsoft software worth an estimated $1 million in the latest stage of a major program of software purchases, reported Interfax on Tuesday. The Central Bank signed the latest contract in November 1996 to supply over 60 regional offices with more than 3,000 copies each of MS-DOS, Microsoft Office 4.3, and Windows 95.

The contract also calls for delivery of over 2,000 copies of Windows for Workgroups, about 1,000 of Access-Client for Windows NT, and 500 copies of both Windows NT Workstation and Microsoft FoxPro.

When you need to know it as it happens

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Wednesday

March 12, 1997

Intercon's Daily

Two similar contracts for software purchases were signed in 1995 and July 1996 and talks are underway for further purchases. A new contract is likely to be signed in the first half of this year, said Interfax.

Microsoft reported Russian and CIS sales (with the exception of Ukraine and Belarus) of $14 million in 1996. The Moscow division of Microsoft will take over operations in Belarus, beginning this year. The company has seven distributors in Russia and one in Kazakhstan.

Lazarenko also told parliament that the Ukrainian economy is beginning to show signs of recovery after five years of recession, reported Xinhua. Industrial production rose one percent last year, halting a five year slide which had seen production plummet 54 percent, he told a session of parliament. Ukraine's foreign trade turnover rose 19 percent last year to $37.8 billion, he said.

However, Lazarenko admitted that the government has failed to improve the profitability of state-owned enterprises. He said 29 percent of industrial enterprises were in the red and Ukrainian products were not competitive because of unsatisfactory industrial reforms and the use of outdated technology, he added.

Lazarenko complained that the slow progress of legislation had hindered the development of the economy. He pledged that the government would work to speed up the legislative process to protect state and private enterprises in 1997.

South Caucasus & Central Asia

Georgia's Parliament Speaker in Washington

· Speaking at the National Press Club and the Carnegie Endowment in Washington this week, Georgian parliamentary chairman Zurab Zhvania emphasized Georgia's commitment to democracy and institution building as its main natural resource. While deprived of oil and other natural resources, Zhvania stressed that Georgia has now become one of the most stable governments in the region and seeks to play its traditional historical "role as stabilizer in the region."

Zhvania highlighted Georgia's achievements since civil war gripped the country shortly after independence in 1991. After a long and painful period, which included the loss in 1993 of Abkhazia to separatists backed by Chechen and Russian forces, Georgia has emerged stronger than before and with genuine democratic attainments, he said. The first major steps toward normalcy included the adoption of a new constitution, based on the US model, and by what the US has termed the most open and free election in the former Soviet republics in November 1995. In this election, Mr. Eduard ShevaRdnadze received over 75 percent of the vote for the presi

European Republics

Anti-Russian Protest in Belarus

· About 4,000 Belarussians marched through Minsk on Monday to protest their country's planned integration with Russia, clashing with police outside a government building, reported the Associated Press (AP). The demonstrators waved Belarussian flags and carried signs saying: "Integration Equals Occupation." Specifically, the demonstrators were protesting the arrival of a delegation of Russian legislators to discuss measures to bring about closer integration between the two countries.

The protesters clashed with large number of police and OMON troops and several people were injured, according to Interfax. Protest organizers estimate that about 100 demonstrators were detained after the protest, reported Reuters.

Ukraine Salary/Pension Arrears

· Ukrainian Prime Minister Pavel Lazarenko told a session of parliament on Tuesday that the country's wage arrears had reached 1.357 billion hryvnias (over $700 million) and pension arrears totals 1.2 billion hryvnias, reported Itar-Tass. The cause of such an enormous wage and pension debt is a latent budget deficit, increased salaries and wages for state-run enterprises, and overestimated local budget figures, said Lazarenko. In addition, some ministries and agencies have overspent their budgets, he said.

To solve the debt problem, he called for major staff cuts in both the executive and the legislative branches and an aggregate cost estimate for the government and parliament. The government intends to reduce the wage debt by 35 percent by May, and to settle December pension arrears by late March, he said.

When you need to know it as it happens

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dency and his Civic Union party, which Zhvania heads, won control of the parliament.

During the last 17 months, over 1,500 pieces of legislation have been passed, including bills on land reform, new regulations on the economy and foreign investment, judiciary reform, and others. ZHVANIA described Georgia as currently being the "darling of the IMF." The country has reduced the annual inflation rate from 6,000 in 1994 to only 13.5 percent in 1996, when it was expected to be at least 30 percent, he said. GDP increased 13 percent, with industrial output growth at eight percent and agricultural growth at 20 percent.

ZHvania pointed to the historically important role of Georgia as a crossroads between East and West. Georgia is a strategically important player as a safe transportation corridor for Azeri Caspian Oil, Uzbek cotton, Kazakh oil, and other products exiting Central Asia to the Black Sea. He emphasized the important meetings between Presidents Aliyev and Shevardnadze recently during which Azerbaijan declared Georgia as the preferred route for the "Big Oil" Caspian export pipeline to Turkey. Zhvania also indicated that discussions are being undertaken with Russia concerning the construction of a gas pipeline through Georgia to Turkey.

While Zhvania stressed that Georgia placed regional cooperation as its top foreign policy priority, he expressed disappointment in the lack of progress with the Russian-Georgian strategic partnership. After three years of Russian mediation and peacekeeping under UN mandate their has been absolutely no progress in repatriating nearly 300,000 refugees to Abkhazia. This has led to rising tensions in Georgia.

Today, 10 members of the Georgian parliament are engaged in a hunger strike calling for the withdrawal of Russian forces. Shevardnadze's reliance on Russia for assistance in return for military basing agreements has produced few results and it is

becoming increasing difficult to respond to constituents' criticism of this policy. This is especially the case after Russia refused to extradite from Moscow Igor Giorgadze, who was implicated as the leader of the August 1995 attempted assassination of Shevardnadze, said ZHVANIA.

When asked to explain Russia's policy toward the Caucasus region, he said: "The failure of Russia to have a coherent policy in the Caucasus is responsible for the regional crises."

Amoco Joins Caspian Pipeline Consortium

· Amoco Kazakhstan, a unit of Amoco International, has signed an agreement with the Kazakh government to help build the Caspian Pipeline Consortium (CPC), an international group constructing an oil export pipeline between Kazakhstan's Tengiz oilfields and Russia's Black Sea port of Novorossiisk, reported RIA Novosti today.

Amoco will invest $150 million toward the construction of the Kazakh sector of the pipeline, covering the Kazakh government's 19 percent share in the some $1.5 billion project. In exchange, Amoco will receive the right to transport three million tons of oil per year through the CPC pipeline.

Amoco will also take care of prospecting operations in the western Aktyubinsk region, said the report. In addition, the US oil company is expected to back the construction of a pipeline from western Kazakhstan to Turkey via the Caspian Sea and the south Caucasus.

In addition, Kazakh oil minister Nurlan BALGIMBAYEV said today that Kazakhstan has granted Amoco the right to develop its onshore Temir and Yuzhnaya Emba oilfields, reported Reuters. Amoco's total capital investments in oil projects in Kazakhstan are expected to amount to $15 billion over the next 20 years. Amoco is also a member of two international consortiums developing oil reserves in the Azeri sector of the Caspian Sea.

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

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