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

Wednesday, March 26, 1997

get carried away by emotion and provocation," he said. Tensions are high across Russia with people and authorities worried that the protests will turn violent. Even the trade unions that organized the strike action are appealing to people not to let the situation get out of control. According to Intercon sources, the police at the US Embassy in Moscow are telling people not to attempt to conduct consular business Thursday due to concern over the protests.

Yeltsin Bans Govt. Use of Foreign Cars

· Russian President Boris Yeltsin today signed a decree prohibiting the government from purchasing imported cars and ordering the sale of all foreign-made automobiles already in government use, effective April 1, reported the Associated Press (AP). The measure was proposed by newly-appointed First Deputy Prime Minister Boris Nemtsov. High-level Russian officials, including apparently YELTSIN himself, are now expected to trade in their BMWs and Mercedes sedans, for Russian-made Volga sedans.

The GAZ auto plant that manufactures Volgas is located in Nizhny Novgorod, where NEMTSOV was formerly governor, and the Russian press has accused the deputy premier of lobbying for the plant.

FSB Arrests Soldier Selling Mil. Secrets

· The Russian Federal Security Service (FSB) has prevented the selling of Russian defense secrets by a Russian serviceman to a foreign country, reported Itar-Tass on Tuesday. A senior officer of a command unit of a strategic missile army unit was

Russian Federation

Politics

More Government Changes Announced

· During a joint news conference today, Russian Prime Minister Viktor Chernomyrdin and First Deputy Premiers Anatoly Chubais and Boris Nemtsov held a press conference to announce further government personnel changes that will bring more reformers to the Cabinet.

Former Economics Minister Yevgeny Yasin was appointed minister without portfolio in the new Russian government and will be in charge of coordinating and reviewing economic policies.

Former First Deputy Trade Minister Mikhail FRADKOV has been named acting head of the Trade Ministry, while former deputy Communications Minister Aleksandr KRUPNOV has become head of the Communications Committee, which is the Communications Ministry with downgraded status.

Aleksei KUDRIN, an ally of CHUBAIS, has been appointed Deputy Finance Minister in charge of revenue raising. CHUBAIS, who holds the finance portfolio, was also made responsible for issues related to the mass media.

CHERNOMYRDIN told reporters that the new Cabinet's main goals are to ensure economic growth, stimulate investment, and raise the standard of living. He also said the government had sent 11.8 trillion rubles ($2 billion) this month to state and private employers to pay for back wages.

The premier also implored the Russian people to remain calm during the planned nationwide strike action, scheduled for Thursday, which is expected to include some 20 million demonstrators. "We mustn't

Today's News Highlights

Russia

Probe - World Bank Coal Loan

US Pension Funds Rent in Mosc

Arian in Russian Gold Deal

European Republics

Belarus in Trouble w/US, Russia

US Drug Company Baltic Merger

Westinghouse Wins Chernbyl

South Caucasus & Central Asia

Armenia Releases Azeri POWs

Siemens in Uzbek Airport Deal

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Wednesday

March 26, 1997

Intercon's Daily

detained for collecting information, which could harm the Russian national security to the tune of hundreds of billions of rubles. The FSB has instituted charges of high treason against the serviceman.

Economy

Ruble = 5,718/$1.00 (NY rate)

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

Ruble = 5,714|5,728/$1.00 (buy|sell rates)

Chubais Orders Probe of WB Coal Loan

· Russian First Deputy Prime Minister Anatoly Chubais has ordered the Finance Ministry's audit department and the Federal Treasury's directorate to investigate the spending of the World Bank's loan to the Russian coal industry, reported Itar-Tass today. Chubais sent a letter informing the governments of the republics of Bashkortostan and Komi, and the administrations of several coal regions, about the probe and ordering them to assist it.

The letter directs the government to take measures in light of disclosures about the misuse of the $500 million coal loan, issued by the World Bank in 1996. Two tranches of the loan were disbursed in the middle and in the end of 1996.

The letter says the probe was prompted by the recent Russian conference of coal miners in Kemerovo, which accused regional administrations of misappropriating the loan. This is not the first indication that the coal loan was misused, however. Accusations that the funds were not used to help restructure the Russian coal industry, as intended, have been circulating for some time.

US Pension Funds Rent in Moscow

· US pension funds have signed a $13.5 million contract with the Moscow government to rent land in the northwestern section of Moscow on a long-term basis, reported Russian television (RTV). The US investors plan to build an international school for 1,200 students and a dormitory complex with 265 buildings, it said.

The transaction was closed by the Moscow Land Chamber under new leasing rules. Under the contract, the pension funds may sell their right to rent the land to a third party and receive up to 20 percent of

the profit from the transaction. The Moscow city government hopes that the new rules will help stimulate the Moscow real estate market.

Business

UK Arian in Russia Gold Co. Deal

· England's Arian Resources Corp. announced on Tuesday the signing of agreements to acquire an additional 30 percent of Russian gold company OMGC, which owns and operates the Julietta bonanza gold-silver deposit as well as exploration licenses in the Magadan Oblast of the Russian Far East, said a company press release.

The agreements require Arian to pay $1.3 million and issue 660,000 common shares to Russian company Geozoloto for 14 percent of OMGC and to pay $1.5 million and issue 750,000 common shares to LLP Nedra company for 16 percent of OMGC. These transactions increase Arian's direct interest in OMGC to 79 percent, with Nedra holding 11 percent and Dukatgeology holding 10 percent. Arian also owns a 1.5 percent indirect interest in OMGC through its 30 percent ownership of Dukatgeology.

OMGC is the owner and operator of the Julietta deposit, where mine construction is scheduled to commence in September 1997 and dore production is planned for the final quarter of 1998. Juliette will be the second western operated gold project in Magadan to commence operation, the first being Amax Gold's Kubaka Mine (50 percent to Amax), located approximately 550 km north of Julietta, which poured its first dore in February 1997. The Kubaka Mine is scheduled to produce approximately 350,000 ounces of gold per year.

Arian's Juliette project is scheduled to produce 127,000 gold equivalent ounces per year during the first three years of operation. Current reserves/resources project production at 72,000 gold equivalent ounces per year for years four through nine.

In addition, OMGC holds three very prospective exploration licenses, totaling 227 square km, surrounding the Juliette project, on which fieldwork is scheduled to commence during the second quarter of 1997. Arian is also actively exploring a number of additional precious metal properties in Magadan.

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European Republics

Belarus in Trouble with the US

· US State Department spokesman John Dinger today denounced the expulsion of a US diplomat from Belarus and announced the recall of its Ambassador in Minsk for consultations. "The United States deplores the unwarranted and unjustifiable arrest, detention, and expulsion of Serge AleXandrov, a US citizen, who is the First Secretary at the US Embassy in Minsk. The pretext for Mr. AleXandrov's expulsion—alleged `provocative activity during an unsanctioned march' and alleged `actions that exceed the boundaries of the 1961 Vienna Convention' is simply false. As part of his normal diplomatic duties, Mr. AleXandrov was observing a protest," he said.

The US on Tuesday urgently summoned its Ambassador in Minsk, Kenneth Yalowitz, to discuss the expulsion of ALEXANDROV and the deterioration of relations between the US and Belarus. Yalowitz will arrive in Washington on Thursday for talks with Secretary of State Madeleine ALBRIGHT. According to Dinger, the US is also considering further steps in response to the ALEXANDROV incident.

Belarus in Trouble with Russia

· The Belarus Foreign Ministry on Monday stripped of his press credentials a Russian NTV television journalist Aleksandr Stupnikov as part of a general crackdown on Russian reporters operating there, causing an outcry in Moscow, reported Itar-Tass.

In addition, Belarus authorities began stopping Russian journalists from entering the main television center in Minsk on Sunday and extended restriction to other foreign broadcasters on Monday. On Tuesday, Belarus officials said they were considering the expulsion of Stupnikov from Belarus because he "is a citizen of Israel and Sweden," said Belarus TV.

"The very fact that Russian television channels have been denied the right to send information materials from Minsk prompts deep concern in the Kremlin," Russian cheif presidential spokesman Sergei YASTRZHEMBSKY is quoted by Reuters as saying on Monday. "We have the right to expect that the principles of freedom of information will be restored in full."

Belarus President Aleksandr LUKASHENKO is due to travel to Moscow next week to sign an agreement on closer integration between his country and Russia with President Boris YELTSIN.

US Drug Co. Merges NIS Supplier

· Instrumental Enterprises Inc. of Spokane, WA, has announced the completion of its merger, as of February 28, 1997, with Baltic Opportunities Corp. of Watchung, NJ, and its subsidiary, SIA MedPro Inc. of Riga, Latvia, reported Business Wire today. Instrumental was formerly called Advance Recording Instruments, which trades on the Electronic Bulletin under the symbol of ADRS. Effective with the merger, the company changed its name to ImmuNIS Corporation.

ImmuNIS is a growing pharmaceutical company which manufactures and distributes active pharmaceutical ingredients in bulk to customers in Europe, and other countries including East and Central Europe. It also custom synthesizes various complex pharmaceutical products for German, Russian, and other customers in the Newly Independent States (NIS) and the Baltic states.

ImmuNIS expects to enter the US nutritional supplement market in 1997 with several clinically tested natural products developed by MedPro. MedPro also operates five pharmacies in Riga and is finalizing negotiations to set up a pharmaceutical operation in Lithuania during 1997.

Westinghouse Wins Chernobyl Contract

· US Westinghouse Electric Corp. announced today that it has won a $10 million contract to manage implementation of $125 million in operational and safety improvements at the Chernobyl nuclear power plant in Ukraine, said a company press release. Under the terms of the contract, Westinghouse and its two subcontractors—National Nuclear Corp. of the UK and Kiev Design Institute of Ukraine—will establish and operate a Project Management Unit which will provide integrated project management and engineering support services for 15 safety projects for Chernobyl Unit 3.

Additionally, the Project Management Unit, which will also include personnel from the Chernobyl site, will coordinate construction of a liquid radioactive

When you need to know it as it happens

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waste treatment plant and a spent fuel interim storage facility in preparation for decommissioning of all units at the site.

The project is being funded by a grant from the Nuclear Safety Account of the European Bank for Reconstruction and Development (EBRD).

Odessa Oil Terminal May Be Revived

· An abandoned oil terminal project at the Ukrainian Black Sea port of Yuzhny, located about 40 kilometers away from Odessa, may be revived. Construction of an oil terminal at Yuzhny was suspended last year because of a lack of funds. Officials from oil terminal company Urknaftoterm are expected to arrive at the construction site in Yuzhny today to meet Prime Minister Pavel Lazarenko and will discuss the future of the oil terminal, said Itar-Tass. Some $26 million, 20 percent of which came from the state budget, has already been spent on the terminal.

An oil terminal already exists, however, at Odessa and some propose the enlarging and modernizing of this aged old terminal. The reconstruction project would cost $20-30 million, which is 100 times cheaper than the cost of building a new oil terminal.

Interest in construction of an oil terminal in Odessa has recently grown as a result of agreements with Azerbaijan and Georgia on studies of the possibility of transporting oil by sea, while bypassing Russia.

South Caucasus & Central Asia

Armenia Releases Azeri POWs

· The Armenian Foreign Ministry announced on Tuesday that it had made a unilateral decision to release all the Azeri prisoners of war captured during the Nagorno-Karabakh conflict as a gesture of goodwill ahead of peace talks, scheduled to resume in Moscow next week, reported Interfax. According to the Ministry, the Armenian Interior and National Security Ministry have already established contacts, and are now cooperating with, representatives of the

International Red Cross to organize the release and transportation of the prisoners. It is not clear how many POWs will be released. Armenia urged Karabakh and Azerbaijan to take a similar step.

Armenia's action is clearly aimed at mitigating some of the damage from last week's appointment of Karabakh president Robert KOCHARYAN as Armenia premier and demonstrating that Armenia is still interesting in moving the peace process forward.

Azeri Leader Aliyev to Visit Turkey

· Azeri President Geidar Aliyev will pay a three-day official visit to Turkey, beginning on April 8, to improve the cooperation between the two countries, reported Xinhua, citing the Turkish newspaper Daily News. ALIYEV will meet with his Turkish counterpart Suleiman Demirel and Prime Minister Necmettin Erbakan. One of the major topics of discussions is expected to be the Caspian Sea oil issue.

Turkey has proposed transporting long-term Caspian Sea oil output along the planned Baku-Ceyhan (southern Turkey) route to the world markets, but this idea has not yet been approved by Azerbaijan. But an unidentified senior Turkish Foreign Ministry official, cited by Xinhua, said the Azeri side has expressed support for the construction of the route and will probably sign a joint declaration on the route at the end of Aliyev's visit.

Siemens to Upgrade Uzbek Airports

· German industrial group Siemens AG said today that it has won a DM30 million (about $17.7 million) contract to supply lighting, monitoring, control, and power systems for three airports in Uzbekistan, reported Reuters. Siemens' industrial and building systems unit (ANL) was awarded the order by Japan's Mitsubishi Corp., which is overseeing projects to modernize airports in Bukhara, Samarkand, and Urgench. The new equipment, which will be operational by this fall, would allow air traffic to continue under poor visibility conditions and would bring the airports up to international standards, said Siemens.

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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