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, March 13, 1997

Russian Federation

Politics

Yeltsin & Chernomyrdin Discuss New Cabinet

· Russian President Boris YELTSIN held a meeting at 1:00pm today with Prime Minister Viktor CHERNOMYRDIN to discuss the proposed changes to the Cabinet. Rumors coming out of Moscow over the last few days have suggested that CHERNOMYRDIN is unhappy with the personnel changes wanted by First Deputy Prime Minister Anatoly CHUBAIS and is trying to stall the process. No press briefing was given after today's meeting, but the Cabinet reshuffle is widely expected to be announced tomorrow.

Gaidar on Economic Reform Course

· Former Russian Prime Minister Yegor GAIDAR told Moscow State University students today that Russia has no future without successively implemented economic reforms, reported RIA Novosti. The current budget crisis is the result of a break in the process of reform implementation. "Liberal reforms in Russia will be conducted under any composition of the government because they are inevitable," he is quoted as saying.

GAIDAR said a share of the blame for Russia's poor economic situation rests on the Communist-dominated State Duma which has adopted "several irresponsible decisions that have aggravated the budget crisis." He admitted that he himself made mistakes during his tenure as premier, but insisted that the course of reforms that he chose was correct.

New Space Forces Commander Named

· Russian President Boris Yeltsin on Wednesday signed a decree appointing Valery Grin as Commander of the Russian Military-Space Forces, reported Itar-Tass. Grin has served as acting commander of the Russian Military Space Forces since

the resignation of the previous commander Vladimir Ivanov in October 1996.

Russian Arms Go Gratis to Armenia

· Russian Defense Minister Igor RODIONOV confirmed in a February 28 letter to CIS Affairs Minister Aman TULEEV that his ministry has been supplying free weapons to Armenia for the last two years, as alleged recently by Azerbaijan, reported Russian Public Television (ORT) today. The letter said the Defense Ministry gave Armenia 84 tanks and 59 armored personnel carriers, worth 270 billion rubles ($47 million), without the government's approval, said ORT, which has a copy of the letter.

RODIONOV said in the letter that he has inititated an investigation into the case, which was passed on to the Prosecutor General's Office.

Economy

Ruble = 5,684/$1.00 (NY rate)

Ruble = 5,700/$1.00 (CB rate)

Ruble = 5,692|5,708/$1.00 (buy|sell rates)

Foreign Mafia Have Infiltrated Russia

· During the first few years of reform, foreign organized crime groups penetrated the Russian market and have "inflicted incomparable damage" on the national economy, Russian Interior Ministry economic crimes department head Aleksandr Dementiev is quoted by RIA Novosti as saying. He told a press conference

Today's News Highlights

Russia

SGS Gets Certification OK

Eurasia Mining to Urals

Donaldson, Lufkin to Moscow

European Republics

CopyTele in Two Deals

Ukraine to Sell-Off Paper Mill

Ukraine Nationwide Strike Ready

South Caucasus & Central Asia

Arm. Premier to Stay?

Turkmen Oil & Gas Conf.

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March 13, 1997

Intercon's Daily

today that the foreign mafia have been laundering money "through international corridors" and taking it out of Russia.

The major criminals "operating in the economic sphere," however, "are now in possession of big money" which is used to exert political and economic pressure on law enforcement agencies, he said. "As soon as we collect enough evidence against some private individuals, a mechanism of counter measures is put into action," he is quoted by RIA Novosti as saying. He said that 18,000 serious economic crimes were registered in 1996.

Currently, his department is investigating 74 criminal cases involving "big criminal gangs and highly-placed officials," he said. But in investigating these cases, the police have come up against "serious opposition" from bureaucratic structures.

Vladivostok Stock Exchange to Hong Kong

· The Vladivostok Stock Exchange will open a mission in Hong Kong later this month. The chief purpose of the mission will be to circulate information about Russian stock issuers, particularly those in the Russian Far East, Vladivostok exchange president Andrei Malyutin told Itar-Tass today. Potential investors working in the Asia-Pacific region are in need of this information, he said. There are no plans to hold sales at the mission, but it will enable investors to join in the bidding, he added.

Business

Canada Co. to License Russia Trade

· Ontario's SGS company announced today that SGS General Testing Laboratories have been accredited by Russia's Gosstandart (GOST) for the North American implementation of the Certification of Conformity (COC) system, said a company press release. Russia uses this system to protect consumer rights and the security of workers.

Customs services are currently enforcing the system and may impound goods which are not accompanied by a valid Certification of Conformity. Certification by SGS can reduce the risk of products being rejected or seized during entry into Russian territory. In order to award a Certification of Conformity, SGS must ensure that all products, goods and consignments

meet the established standards and specifications (which vary by product). Most products will need some degree of independent testing or inspection by SGS. Mandatory lists are frequently drawn up and SGS experts can keep clients informed of the updated lists as the program progresses.

SGS's fully-equipped General Testing Laboratories are part of the SGS global network of 1,220 offices and 342 laboratories in 140 countries. As a Certification Body, SGS has no manufacturing, trading, or financial ties which could compromise the best interests of their clients.

Eurasia Mining in Urals Gold Deal

· Britain's Eurasia Mining Plc. announced on Wednesday that it has agreed to form a joint venture with Russia's Yuzhuralzoloto (YUZ) gold company to plan and implement development of the Svetlinskoye gold deposit in the southern Urals region of Russia, reported United Press International (UPI). Svetlinskoye, a hydrothermal gold porphyry deposit, has estimated total mineral resources of 6.4 million ounces of gold, company officials said in a statement.

The company said that within this site, YUZ has identified an open pit reserve of 31.6 million metric tons. Between 1985 and 1993, ore totaling 650,000 metric tons (MT) grading 2.4 grams/MT was mined from the deposit, and gold recoveries exceeded 88 percent, said YUZ officials.

Eurasia said it is planning a progressive development within the next four months to incorporate the initial open pit mining of near surface higher grade ore for treatment.

Donaldson, Lufkin to Moscow

· US investment bank Donaldson, Lufkin & Jenrette will open a Moscow office by the end of the year, reported Reuters today. Company founder and senior advisor William Donaldson told reporters today that, "This will be more of an investment bank/merchant bank as opposed to a brokerage operation," adding that the company would work with Russian companies seeking new capital. He said that DLJ officials had visited Russian gas monopoly Gazprom, oil conglomerate Lukoil, and other companies on a recent trip to Russia.

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European Republics

Two New CopyTele Deals in NIS

· Huntington Station, NY-based CopyTele Inc. announced on Wednesday two new agreements on distributing and developing its products in the former Soviet republics, said a company press release. A three-year distribution agreement has been entered into with CopyTele's existing distributor in Russia for the sale and service of the MAGICOM 2000 product in Latvia, Lithuania, Estonia, Moldova, Chechnya, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. The aggregate purchase price of the total quantities contracted for sale under this distribution agreement is approximately $18 million.

In mid-February, Intercon reported that CopyTele entered into a distribution agreement with a Russian company for the sale and service of its MAGICOM 2000 product in Russia, Ukraine, Kazakhstan, Georgia, Azerbaijan, and Armenia.

Also announced Wednesday was a February 28, 1997 agreement for a joint development program between CopyTele and an unidentified Russian company. The agreement provides for the Russian company to develop a color video control system for the video flat panel display, currently being developed by CopyTele, and additional technological features for MAGICOM 2000.

The Russian company was formed by a group of specialists in military and aerospace technologies and specializes primarily in the development of custom computers and computer systems architecture, software, and hardware; the development of multimedia and hypermedia systems; and investigation and experimentation in projects for future electronic and information technologies. If the color video control system and technological features are successfully developed, CopyTele would be the sole owner of the technology.

Siiman Approved As Estonian Premier

· Estonia's parliament approved the nomination of Mart Siiman as the country's new Prime Minister by a vote of 72 to 13, reported Xinhua on Wednesday. Siiman, a former journalist, is head of the parliamentary group of the ruling Coalition Party. He replaces Tiit Vahi, who resigned over a real estate

deal scandal last month. Siiman, 50, was asked to submit the names of a new government to President Lennart Meri for final approval within a week.

Estonia is considered the most successful in its transition to a market economy of the 15 former Soviet republics. The government has a balanced budget and the central bank has forecast an annual inflation rate of 12-14 percent this year and gross domestic product (GDP) growth of 4-5 percent.

Ukraine to Sell Off Only Paper Mill

· Ukraine's State Property Fund has announced a tender for the purchase of 28.5 percent interest in the Zhidachiv pulp and paper mill in the Lvov region, the only such mill in the country, reported Interfax today. The Fund said it will accept bid until the end of March. The report did not say whether bids from foreign investors will be considered nor was a price for the shares mentioned.

The mill currently needs an estimated $45-50 million in investment, mostly to put semi-finished pulp products into production. The Ukrainian market for newsprint is estimated at 150,000 tons a year. The mill produces 10 percent of that figure, with the rest of the demand being met by Russian companies.

Nationwide Strike Planned in Ukraine

· Some two million people from 500 Ukrainian enterprises across the country will hold a one-day strike on March 18, the All-Ukrainian workers union told Itar-Tass today. The strikers will demand payment of wage, pension, and scholarship arrears, full employment, and restoration of free education and health care. Aleksandr STOYAN, leader of the Ukrainian Trade Union Federation, announced on Wednesday that his organization will not participate in the strike. He said that halting production during a recession will only serve to demonstrate the discontent of the people, which is already well known.

South Caucasus & Central Asia

Georgia to Buy Oil from Iran

· Iran has agreed in principle to supply Georgia with 1.5 million tons of oil, reported Interfax, citing a Georgian oil official. Revaz Tevsadze, general director of Georgia's state oil company Gruzneft, said an official from the company would head to Iran this week to work out details of the agreement, which

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aims to compensate for Georgia's low oil output. Iran has agreed to let Georgia pay for the oil within four months, added Tevsadze. Interfax quoted a spokesman at the Georgian Ministry of Fuel and Energy as saying the two countries plan to discuss delivery of one billion cubic meters of Iranian gas to Georgia.

Georgia has a demand of about five million tons of oil annually and 3.5 billion cubic meters of gas, but last year extracted only about 128,000 tons of oil and 3.3 million cubic meters of gas.

Armenian Premier Resignation Rejected

· Armenian President Levon TER-PETROSYAN has refused to accept the resignation of Prime Minister Armen SARKISYAN, tendered last week for health reasons, reported Monday's OMRI. SARKISYAN underwent surgery on his trachea last month in London and expects to require more treatment and significant recovery time.

Turkmen Oil and Gas Investment Conf.

· The Turkmenistan International Oil and Gas 1997 Projects Exhibition opened in Ashgabat Tuesday, attracting business executives from more than 20 countries with an interest in developing the some 100 oil and gas deposits in Turkmenistan that are awaiting foreign partners and investors.

Over 80 percent of Turkmenistan's territory, which is 400,000 square kilometers, contains oil and gas deposits. Of 140 explored deposits, only 34 are being developed, Turkmen deputy prime minister Batyr SarZHayev told the conference on Wednesday, according to Itar-Tass. Turkmen territory, including the Caspian shelf, contains an estimated 6.8 billion tons of oil and 12-20 trillion cubic meters of gas, said SarZHayev. To extract these resources, however, foreign capital and modern technologies are needed.

Turkmen gas output totaled 35 billion cubic meters (bcm) last year and 1997 production is targeted at 44 bcm. Exports in 1996 were 24 bcm and are expected

to rise to 40 bcm this year. Gas exports account for some 60 percent of Turkmenistan's total export earnings. About half of 1997 expected exports will go to Western Europe, while the other half will go to Russia under a deal with Russian gas monopoly Gazprom.

Turkmen officials hope to attract foreign investment to increase output to 85 bcm annually and recently passed a law on foreign investment aimed at making the country's oil and gas sector more investor-friendly. Turkmen Oil and Gas Minister Gochmurad NAZDAHANOV told the conference that finding new export routes to bring Turkmen oil and gas to market is the key to increasing output, reported Reuters.

The construction of export pipelines is a major problem on the agenda of the conference. Turkmenistan currently relies on Russia's pipeline system for its gas exports, which are limited by capacity and access granted by Russia.

Oil and gas condensate output grew from 3.5 million tons in 1995 to 5.5 million tons in 1996, but the resources are largely undeveloped, particularly offshore reserves in the Caspian Sea, or developed inefficiently. Turkmen officials said at the conference that it will hold an investment tender later this year to open up its offshore reserves.

Several major foreign oil and gas companies that have already invested in Turkmenistan, including Britain's Dragon Oil and Monument Oil, US Mobil and Unocal, and Delta Nimir of Saudi Arabia. These companies realize the need to develop new oil export outlets as well as exploit reserves. Currently, there is no easy way to bring Turkmen oil to foreign markets and nearly all oil output is used domestically.

Unocal and Delta Nimir are planning a major pipeline that will transport gas through Afghanistan to Pakistan and India, but construction of the pipeline is awaiting international recognition of the new Afghan government.

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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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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