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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, March 21, 1997

Russian Federation


Russian Deserter Sleeps in US Embassy

· US Embassy in Moscow officials say a Russian man entered the US Embassy compound and spent the night in the home of the top US diplomat in Moscow earlier this month, reported United Press International (UPI) on Thursday. The officials confirmed a Washington Post report that on March 8, an unarmed man evaded embassy security and found his way into the home of the charge d'affaires, John Tefft, who has been the acting head of the diplomatic mission since the departure of former US Ambassador Thomas Pickering.

Officials refused to confirm the Post's report that the intruder spent the night in Tefft's home before being found naked by the envoy's wife, Mariella, the next morning as he was taking a shower. He also reportedly drank from the bar and raided the fridge.

An Embassy spokesman did confirm that the man, who allegedly identified himself as an army deserter from Ryazan, offered no resistance to embassy security, which interrogated him briefly before handing him over to Russian authorities. The spokesman also said that no classified information had been compromised by the security breach.

Tula Gubernatorial Election on Sunday

· The central Russian Tula Oblast will hold its gubernatorial election on Sunday, a hotly-contested race that includes about a dozen candidates. Leading the pack with some of 40 percent of support in public opinion polls is Vasily STARODUBTSOV, a leader of the Agrarian Party and one of the 1991 coupmakers. Communist Party leader Gennady ZYUGANOV visited Tula earlier this month to campaign for STARODUBTSOV.

Other candidates also have influential friends. Gazprom president Rem Vyakhirev visited the Tula region on Monday to stump for the gas monopoly's favored candidate, Central Gas company General Director Viktor Sokolovsky, reported Rabochaya Tribuna on Tuesday. In 1997, Gazprom plans to spend 514 billion rubles on a project to build a pipeline network to supply gas to every town and settlement in the Tula region. In addition, Gazprom has promised a 15 percent discount on natural gas prices for that region.


Duma OKs Privatization List

· On Wednesday, the Russian State Duma announced the approval of a list of 65 federal and 1,732 municipal assets to be privatized during 1997, reported Interfax. The list contains organizations from a number of industries such as research institutes, defense plants, transport and communications companies, food processing plants, health, cultural, and publishing facilities.

The list of enterprises slated for privatization includes gas repair outfit Spetsgazremstroi, petrochemical plant Orgneftekhimzavody, refining control design bureau ASUnefteprodukt, and Moscow winery Samtrest.

Iran Begins Payment for Russian Nuke Plant

· Iran has remitted $80 million to Russia as partial payment for the construction of the Bushehr nuclear power plant, Itar-

Today's News Highlights


EBRD Loan for Chernogorneft

Vozhrozhdeniye Sells ADRs

Citibank Reps. in the Regions

European Republics

Another Anti-Lukashenko Rally

Ukraine-EU Steel Accord

South Caucasus & Central Asia

Azeri Reaction to Kocharyan

New Georgian Airline Set Up

Georgia - Manganese Tender




March 21, 1997

Intercon's Daily

Ruble = 5,721/$1.00 (NY rate)

Ruble = 5,714/$1.00 (CB rate)

Ruble = 5,705|5,723/$1.00 (buy|sell rates)

would be used to finance a drilling program, as well as the replacement of corroded pipes, and the recultivation of contaminated areas. This will be the EBRD's first corporate loan to a Russian oil company. Nikolai Smolyar, first vice president of Chernogorneft, said the loan would enable the company to stabilize, develop, and increase oil recovery from the Samotlor oilfield in western Siberia.

Vozrozhdeniye Sells ADRs to CS First Boston

· Russia's Vozrozhdeniye bank has sold three percent of its shares through an American Depositary Receipt (ADR) program to CS First Boston, reported Reuters. One ADR corresponds to one underlying ordinary share with a face value of 10,000 rubles. Vozrozhdeniye deputy chairman Aleksandr DOLGOPOLOV told reporters that CS First Boston paid 20,000 rubles for each ADR. ING Bank Eurasia is the custodian and Bank of New York is the depositary bank in the deal.

Another major Russian commercial bank, Inkombank, has already issued ADRs for three percent of its shares and Menatep bank is planning an ADR issue.

Citibank Delegation in Russian Provinces

· A delegation from US Citibank, led by bank president LOWSON, recently toured three Russian cities—Novosibirsk, Yekaterinburg, and Nizhny Novgorod—to study the situation in Russian regions and research the investment climate for its clients, reported Kommersant-Daily last week. Citibank, which has been operating in Russia for three years, has $100 million in capital, with headquarters in Moscow and a branch office in St. Petersburg.

According to Lowson, Citibank visited the three strategically important regions to assist certain US companies wanting to break into new Russian markets. For instance, in Yekaterinburg, the capital of the Urals' Sverdlovsk Oblast, the Citibank client PepsiCo is beginning operations. Currently, it is engaged in developing the local market and constructing a Pepsi-producing plant.

In the future, Citibank intends to finance Russian industrial companies, said Lowson. The delegation also held negotiations at the local Central Bank branches. Citibank is planning to open representative offices in the three cities, said the report.

Oct Nov Dec Jan Feb Mar

Tass cited Deputy Atomic Energy Minister Yevgeny Rechnikov as saying. The contract is worth $800 million and construction is expected to begin in 1998.

Russia-Iraq Eco. Cooperation Accord

· Iraq and Russia signed on Thursday an agreement on economic and trade cooperation particularly in oil exploration, reported Xinhua. Russian Fuel and Oil Minister Petr Rodionov and Iraqi Oil Minister Mohammed Rashid announced in a joint press conference after the signing ceremony in Baghdad that the two countries would cooperate in oil exploration, agriculture, industry, and transport. Rodionov arrived in Baghdad on March 16, heading a delegation of 80, the biggest since the Gulf war.

Under the agreement, the two countries have agreed to jointly develop two new oilfields in southern Iraq, which are expected to produce 100,000 barrels of oil per day. Russia also agreed to provide 100,000 tons of rice, 50,000 tons of sugar, and other foodstuffs to Iraq in exchange for oil within the framework of

the "oil-for-food" program.


Siberian Oil Co. Receives EBRD Loan

· Major Western Siberian oil company Chernogorneft, one of Russia's largest oil firms, will receive a $50 million loan from the European Bank for Reconstruction and Development (EBRD), reported Futures World News (FWN) today. The money

When you need to know it as it happens




March 21, 1997

Intercon's Daily

European Republics

Soviet Practices Return to Belarus

· Some 50-70 Belarussian students held a rally to protest President Aleksandr LUKASHENKO's plan to force university graduates to work in areas highly polluted by radiation from Chernobyl nuclear accident, reported the Associated Press (AP) and Reuters. "Only you can stop the genocide of the young people," declared the demonstrators. About 20-30 protesters were detained at the rally, including Pavel Znavets, a member of former parliament.

In keeping with a trend toward a return to Soviet-era practices, LUKASHENKO wants to revive the policy of dictating what employment college graduates must pursue, arguing that it will help reduce unemployment. "Free choice of jobs has led to the situation where we cannot provide schools with teachers for a number of subjects," Deputy Education Minister Gennady DYLYAN is quoted by AP as saying.

Also on Thursday, opposition leader Mechislav Grib, a former parliamentary chairman, was fined 20 million Belarussian rubles (about $829) by the Belarus Court for leading a 10,000-strong protest against LUKASHENKO's policies on Saturday, reported Reuters. He was ordered to pay the maximum fine for his offense.

Ukraine-EU Steel Accord

· The European Commission (EC) and Ukraine have reached a new steel agreement that will allow Ukraine to increase sales to the European Union of certain iron and steel products up to the year 2001, reported Xinhua on Thursday, citing the EC. The new deal will cover certain iron and steel products under the European Coal and Steel Treaty, such as coils, heavy plate or wire rod.

Under the agreement, which still requires approval by EU Ministers and the Ukrainian authorities and should enter into force on 1 July this year, the quantitative limits for 1997 will be 233,154 tons, 10 percent higher than in 1996, rising by another five percent in 1998, and by 2.5 percent in 1999-2001.

The new agreement will follow the expiration, on June 30 this year, of an earlier agreement covering 1995-96, which allowed Ukraine to increase its

exports of products subject to quotas by 35 percent in 1995 (to 140,833 tons) and 15 percent in 1996 (to 161,958 tons). But the Commission said Ukraine only used about 50 percent of the limits in both years.

Total EU imports of Ukrainian iron and steel products rose from 660,000 tons in 1993 to 1.6 million tons in 1995.

South Caucasus & Central Asia

Azeri Reacts to Kocharyan Appointment

· Speaking before a meeting of regional experts at the Carnegie Endowment in Washington, Vafa GULUZADE, chief Azeri negotiator on the Nagorno-Karabakh conflict and Foreign Policy Advisor to President Aliyev, he warned that the appointment of Robert Kocharyan as Armenian Prime Minister could block any chance for arriving at a peaceful settlement to the conflict.

When asked why the Armenian President would have made such a controversial selection, GULUZADE responded that Armenia is in political turmoil and this is an attempt to strengthen his regime. The Ambassador of Armenia Rouben SHUGARIAN, who was present at the meeting, responded that this was partially correct. The Ambassador added that the new premier's two priorities are, first, to engage in dialogue with the opposition and deal with internal political issues and, second, to strengthen the economy.

This appointment may also complicate relations with neighboring Georgia. According to a Georgian government source in Tbilisi, KOCHARYAN reportedly pledged never to allow one drop of Caspian oil to flow through Georgia from Azerbaijan after he was elected president of Nagorno-Karabakh in November 1996. When asked about this statement Wednesday at the Center for Strategic and International Studies (CSIS), GULUZADE expressed confidence that the "Western pipeline route" can be protected.

Meanwhile, the Azeri Foreign Minister reacted cautiously to the news of KOCHARYAN. Reuters reported that Hasan HASANOV will reserve judgment "...until I can determine the motive for (Ter-Petrosyan's) act. Deputy Foreign Minister Araz AZIMOV was not as reserved in his comments.

When you need to know it as it happens




March 21, 1997

Intercon's Daily

AZIMOV stated that it was now clear to him that Armenia "wanted to reinforce its annexation of the territory of Azerbaijan," according to Reuters. This comes along with the backdrop of recent disclosures from Russia that over $50 million worth of military equipment was illegally transferred to Armenia (Nagorno-Karabakh) without payment. This included 84 battle tanks and 50 infantry fighting vehicles.

One source within the US government, who asked not to be identified, described the arms transfer as part of Russia's secret war to destabilize the Caucasus. The official linked these transfers to others which occurred during the Georgian-Abkhazian conflict. Some say the ultimate goal of this policy is to prevent the Caspian "big oil" project from building a pipeline through Georgia to Turkey.

One thing is clear, political instability in Armenia is not in the interests of the region. When GULUZADE was asked by a representative of the Armenian Assembly if he would support humanitarian aid to the children of Nagorno-Karabakh, his answer was yes. GULUZADE continued that the humanitarian aid bill introduced in the US House of Representatives should only add "Nagorno-Karabakh region of Azerbaijan," rather than just Nagorno-Karabakh. GULUZADE stated that, without this clarification, the real purpose of the legislation would be to obtain recognition of Nagorno-Karabakh from the US. The Armenian representative responded with silence.

New State Airline Formed in Georgia

· Georgia has set up a new state carrier, called Georgian Airways (Sakartvelos Aviakhazebi), that will begin operations in July, Georgian Transport Minister Merab ADEISHVILI told Reuters on Thursday. The airline will lease two A_310 passenger jets and two smaller planes from Airbus Industrie in April, Zurab CHANKOTADZE, the head of the Georgian civil aviation agency, told Reuters today.

ADEISHVILI said that the private Orbi Georgian Airlines may soon go out of business because of

financial difficulties. Orbi, founded in 1991 from the breakup of the Soviet carrier Aeroflot, operates five Tupolev Tu_154 planes, with regular and charter flights to Russia and other former Soviet republics.

EBRD Loan for Georgian Banking Sector

· The European Bank for Reconstruction and Development (EBRD) has extended a $5 million loan to help develop the commercial banking sector in Georgia, reported Itar-Tass on Thursday. The loan will be used by for Absolute Bank of Tblisi, a GeorgianUS joint venture. Absolute Bank will use the EBRD loan to provide mediumterm credits to private sector companies in Georgia.

EBRD president Jacques de LAROSIERE said the loan would help Georgia to create a network of reliable and powerful banks, a crucial prerequisite for economic stabilization. He also promised further assistance from the EBRD for Georgia's banking sector, particularly for private banks.

Georgia to Tender Manganese Deposits

· The Georgian government may hold an international tender to develop its large manganese deposits and is holding negotiations on the project with South Africa's Samancor, reported Reuters, citing the government press service. "Samancor representatives have expressed their proposals on cooperation with AO Chiaturmarganets with the goal of exporting production to world markets," Giga CHOGOVADZE of the state chancellery's economic section is quoted as saying.

Georgian manganese producer Chiaturmarganets, based at the Chiatur mining and metallurgical complex in western Georgia, needs $20-30 million in investments, said CHOGOVADZE. The state owns a 73 percent stake in the company.

Chiaturmarganets produced 15,000 tons of manganese concentrates in 1996, down from average annual output of 1.7-1.8 million tons during the Soviet era. It accounts for some 25 percent of the former Soviet Union's manganese production.

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

Svetlana Korobov, Contributing Editor

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When you need to know it as it happens