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

Wednesday, March 19, 1997

Conservative Duma deputies are clearly upset that they have lost the man that represented their viewpoint on agricultural policies in the government. The former Deputy Prime Minister in charge of agriculture Aleksandr ZAVERYUKHA was a member of the Agrarian Party who had promoted the leftists' view since December 1993. The current Agriculture Minister, Viktor KHLYSTUN, is a reformer who previously held the agricultural portfolio between late 1991 and late 1994, and is disliked in the Duma.

Top General Charged with Corruption

· The deputy commander of Russia's ground forces, Colonel-General Anton TERENTYEV, has been charged with fraud and abuse of power, reported Interfax on Tuesday. Military prosecutor's office official Yuri BAGRAYEV told the news agency that TERENTYEV was charged with having used forged documents to register service apartments in Moscow as his property. He said that TERENTYEV has been suspended from his post after the charges were formally moved on Monday and ordered not to leave Moscow until the end of the investigation.

Meanwhile, Russian Defense Minister Igor Rodionov told reporters on Tuesday that he had approval from President Boris YELTSIN to fire several top army commanders, reported the Associated Press (AP). He would not disclose the names of the generals, because some of them were being investigated by the military prosecutor's office and the probes were still incomplete in many cases.

Russian Federation


More Government Personnel Changes Planned

· Russian Prime Minister Viktor CHERNOMYRDIN said today that the reorganization of the government will be completed early next week. "The changes in the structure of the government and its personnel composition will be over at the beginning of next week," he is quoted by Itar-Tass as saying.

First Deputy Prime Minister Anatoly CHUBAIS also said on Tuesday that more government changes were pending. "It is too early to put a final stop. Some unexpected and important things may still happen. There will be more surprises," he said on NTV independent television. CHUBAIS also pledged that the new Cabinet would solve the problem of wage and pension arrears, but predicted it would take 6-8 months to "reach a visible breakthrough."

In an interview with Reuters on Tuesday, CHUBAIS said the new government is ready to begin the next stage of economic reform, including an "aggressive" effort to complete a new tax code. Asked how he would address the problem of non-payment of debts by both the government and private sector, he said: "For solving that problem first we need property rights, we need to develop the securities market, to speed up the privatization process and that is something on the agenda for the government."

Duma Wants An Agriculture Official

· The Russian State Duma called on President Boris Yeltsin today to re-introduce the post of deputy prime minister in charge of agriculture, dropped in the recent reshuffle, reported Itar-Tass. According to the Duma, the post is crucial for more rapid solutions to problems in the agriculture sector and for "agrarian and land reforms."

Today's News Highlights


Duma Delays Prod.-Shar. Bill

CB to Increase Gold Reserves

Problems with Diamond Exports

Fighter Jets Go to India

US Sees Telecom Protectionism

Glushkov Named to LogoVAZ

European Republics

Ukraine Cellular Project

World Bank Project for Ukraine

Massive Protests in Ukraine




March 19, 1997

Intercon's Daily


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

Ruble = 5,710/$1.00 (CB rate)

Ruble = 5,702|5,718/$1.00 (buy|sell rates)

Duma Removes Prod.-Sharing from Agenda

· The Russian State Duma has dropped plans to debate government-proposed legislation on production-sharing at its extraordinary session on Thursday, reported Interfax today. Originally, the Duma was to devote the bulk of this special session to this issue, but Liberal Democratic Party (LDP) head Vladimir ZHIRINOVSKY introduced a proposal today to delay the discussion of production-sharing bills. The proposal was backed by Communist Anatoly LUKYANOV and People's Power faction leader Nikolai RYZHKOV and passed by a vote of 234-127, with one abstention.

The government has proposed a list of mineral deposits to which previously-passed production-sharing legislation will apply. The number of deposits on the list was cut considerably to make it more attractive to deputies, but the Communist faction is still voicing its opposition. The government is anxious to pass the legislation as it is the key to encouraging major foreign investment projects.

CB to Increase Gold Reserves

· The Russian Central Bank currently holds gold reserves of 390 tons, or over 90 percent of Russia's total gold reserves, reported Itar-Tass. Speaking at the "Precious Metal and Precious Stones Market: A New Sector of the Russian Financial Market" conference in Moscow today, Bank first deputy chairman Sergei Aleksashenko said the Bank plans to build up its gold and currency reserves, over the next two years. The Central Bank bought 90 tons of gold in 1996.

He told the conference that the Russian government was drafting a decree which would commission the Central Bank to announce prices of precious metals daily. But Aleksashenko also said the Central Bank would remain the sole buyer of gold for the next few years, adding that before the precious metals market could be liberalized, further development of Russia's gold, silver, and platinum markets was needed, reported Reuters. Moreover, he feels that the export of gold by commercial banks at this time

is "unreasonable" and that Russia did not expect internal gold demand to rise soon.

Bureaucracy Stops Diamond Exports

· Recent government restructuring has stranded Russian gem-cutting plants without the necessary licenses to export cut and polished diamonds. Ararat EROYAN, managing director of the Association of Russian Gem Manufacturers told Interfax today that the Industry Ministry was supposed to approve the issuance of licenses to export and import rough and cut diamonds and jewelry. The Trade Ministry was to issue the licenses themselves.

The Ministry took over responsibility for the licenses from the old Russian Committee on Precious Metals and Stones (Roskomdragmet), which was abolished in November 1996, but no regulatory acts were issued confirming this. The Industry Ministry was abolished in this week's government restructuring and its functions are to be transferred to the Economics Ministry. The status of the Trade Ministry is uncertain, but its minister was dismissed.

Neither the foreign trade diamond association Almazyuvelirexport nor Kristall, a state-run diamond-cutting association based in Smolensk, have received general export licenses for 1997, said EROYAN. The delays in licensing are costing diamond-cutting plants serious losses, as up to 90 percent of all diamonds cut and polished in Russia are exported.

Russia Delivers Fighters to India

· On Monday, Russia began delivery of Su_30 MK fighter jets to India, with two of the 40 fighters having already been flown to India, reported United Press International (UPI). The Su_30 MK is similar to F_16s and Mirage_2000 flown by Pakistan's air force. The jets are part of a $1.8 billion deal signed in November 1996. India is the first foreign country to receive the Su-30 version. Russia will deliver all 40 jets by 2000, and will also provide training and technical assistance for pilots and engineers.

Russian state arms export agency Rosvooruzhenie general director Oleg SIDORENKO said Tuesday that aircraft represented half of Russia's military exports in 1996, reported Russian television (RTV). The two largest contracts signed last year by Rosvooruzhenie were the nearly $2 billion contract

When you need to know it as it happens




March 19, 1997

Intercon's Daily

with India for Su_30s and an $800 million contract with Malaysia for the delivery of MiG-29 fighter jets.

Speaking at the IDEX arms show in Abu Dhabi on Tuesday, Rosvooruzhenie official Aleksandr KOTELKIN said that Russia would catch up with the US in arms exports by 1999, reported today's Financial Times. He estimated that the global arms trade would be worth $18 billion by the end of the century, and that the US and Russia would each hold a third of the market.


US Worried Over Telecom Protectionism

· US companies are concerned that a recent decree issued by the Russian Communications Ministry is intended to protect Russian telecommunications equipment manufacturers of central office switching equipment, according to a report from the US Commercial Service in the Moscow Embassy. A senior representative of a major Russian telecommunications equipment company met with US companies last month to discuss the decree, contending that it was aimed at encouraging foreign companies to invest in Russian telecommunications equipment manufacturers, said the report.

Yuri KHAZACHIYEV, vice-president of Rostelekom, met with US companies on February 20 to comment on Order No. 8, regarding protection measures for Russian makers of telecommunications equipment, issued by the Communications Ministry on January 14. The meeting was organized by TECNIS, the representative office of the US Telecommunications Industry Association (TIA) in Russia.

Order No. 8 notes that domestic enterprises are now developing production of telecommunications switching equipment and that local joint ventures are producing modern equipment. The Ministry decree plans to support wider use and production of locally-manufactured switching equipment through the following measures: ordering telephone operating companies running the public network to use switching equipment manufactured in Russia, including by joint venture companies; allows the use of imported switching equipment only for expansion of existing facilities and, as an exception, when national equipment cannot be used; requires domestic telecommunication companies to acquire written Communica

tions Ministry confirmation that national equipment cannot be used before signing contracts to purchase foreign equipment; authorizes that licenses issued by the Ministry licensing department to include any requirement as a result of this order; and authorizes Gossvyaznadzor (state communications inspection agency) to ban the establishment of communications sites that do not meet the requirements of the order.

KHAZACHIYEV said that Order No. 8 is part of the Ministry's efforts to promote investments in local production by foreign telecommunications equipment companies, naming Alcatel, Siemens, Italtel, Ericsson, NEC, Samsung, and AT&T as companies that were planning to establish local production and training centers.

Representatives of US companies expressed to KHAZACHIYEV strong concerns that Order No. 8 will set a dangerous precedent where the Russian Communications Ministry uses administrative protectionist measures to limit free competition and free market access. They noted that if this policy is implemented in other telecommunications sectors, it will affect most foreign suppliers and slow down the development of the Russian telecommunications network and implementation of modern technologies.

LogoVAZ to Name New Leadership

· The LogoVAZ car company held a general meeting on Tuesday which elected a new board of directors and named Nikolai Glushkov as board chairman, reported Itar-Tass. The shareholders also agreed to increase LogoVAZ's charter capital by offering to sell a stake in the company to the Obedinenny Bank.

Glushkov replaces Boris Berezovsky, who was appointed deputy secretary of the Russian Security Council. He is currently the first deputy general director of Russia's Aeroflot airlines. He previously served a high-ranking official at LogoVAZ.

GLUSHKOV and BEREZOVSKY were most recently linked in a lawsuit against Forbes magazine. The two men are jointly suing the magazine for libel in connection with a December 30, 1996 article which alleged that BEREZOVSKY was linked to the mafia and the contract killing of a Russian TV personality and that GLUSHKOV had been convicted of theft in 1982.

When you need to know it as it happens




March 19, 1997

Intercon's Daily

European Republics

Danish Firm in Ukraine Cellular Project

· Danish telecommunications services group Tele Danmark A/S announced today that Ukrainian Mobile Communications (UMC), a consortium including Tele Danmark, has been awarded one of three licenses to operate a nationwide GSM mobile telephone network in Ukraine, reported Business Wire. UMC has offered NMT mobile telephone services since 1993. Today, UMC covers the largest cities and the major highways in Ukraine. At the end of 1996, the company had approximately 29,000 NMT subscribers and 497 employees.

UMC has already established a GSM network in Kiev which is ready for operation. The Ukrainian government has, however, announced that the allocation of frequencies will be postponed for five months, after which time the network can start operating. The right to use the radio licenses costs $34 million and will be for a period of 15 years, corresponding to the remaining period of UMC's NMT license.

In addition to Tele Danmark, which owns a 16.33 percent share of UMC, the consortium includes UKR-TELECOM (a Ukrainian state company) holding 51 percent, and Deutsche Telekom and Dutch PTT Telecom, each holding 16.33 percent.

Ukraine has a population of 52.1 million people, but the country has a low telephone penetration rate (around 16 percent) and approximately 0.1 mobile telephone subscribers per 100 inhabitants. The Ukrainian market is characterized by a considerable unsatisfied demand for basic telephone services.

Ukraine-NATO Talks in Brussels

· Ukrainian Foreign Minister Gennady Udovenko will visit NATO headquarters in Brussels on Thursday to hold the first round of talks with NATO Secretary-General Javier Solana on a special relationship between Ukraine and NATO.

World Bank Guarantees for Ukraine

· The World Bank on Tuesday approved a partial risk guarantee of $120 million to support a Pre-Export Guarantee Facility (PGF) established by the Ukrainian government to help the country's transition to a market-based agricultural system, said a World Bank press release. The PGF will encourage foreign investors to finance the working capital or fixed capital requirements of Ukrainian agricultural enterprises, agro-processing enterprises, and private distributors.

By providing credible guarantees against risks associated with perceived political uncertainty, the Bank-supported PGF is expected to enhance the country's transition to a market through a number of ways including assisting Ukrainian enterprises to build links with foreign partners and fostering the introduction of increasingly sophisticated trade finance mechanisms into the Ukrainian market.

The Guarantee Administration Unit (GAU), an independent entity established by the government, will sell guarantee contracts against government performance and political force majeure risks, back-stopped by a World Bank guarantee. These contracts will be sold on a first-come, first-serve basis to foreign input suppliers, trading companies, or financial institutions that finance the provision of inputs to local Ukrainian enterprises.

Massive Workers Protests in Ukraine

· Tens of thousands of people nostalgic for the Communist era protested against unpaid wages across Ukraine on Tuesday. Back wages and pensions total 4.2 billion hryvnia ($2.3 billion), according to Reuters. Ukraine's Interior Minister estimated that 85,000 people took part in rallies around the country, reported Interfax-Ukraine. Some 7,000 protesters marched through Donetsk, while 5,000 Communist supporters demonstrated in Dnipropetrovsk, the hometown of President Leonid KUCHMA. Leftist groups are trying to organize another protest demonstration for May 1, if wages are not paid.

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