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 27, 1997

New Presidential Aide Named

· Russian President Boris Yeltsin has appointed Vladimir Putin as deputy chief of staff of the presidential administration and head of the president's main audit department, reported Itar-Tass. PUTIN worked in the St. Petersburg Mayor's Office from 1991-1996 and, in the beginning of 1997, he was appointed deputy presidential business manager.

Economy

Ruble = 5,726/$1.00 (NY rate)

Ruble = 5,723.5/$1.00 (CB rate)

Ruble = 5,716|5,731/$1.00 (buy|sell rates)

Nationwide Strike Smaller than Expected

· Millions of Russians marched through the streets today, venting their anger against the government for unpaid pensions and wages. But the number of protesters was some 10 times lower than the 20 million forecast by the trade unions that organized the rally, reported Russian television (RTV). Predictions that the demonstrations could turn violent also proved unfounded.

It is not clear whether people were deterred by the recent Russian government personnel changes, by traditional Russian passivity, or by fears that the demonstrations could get out of control.

Police were out in force today in Moscow, where some 50,000 people, mostly trade unionists and Communists, turned out to protest. According to

Russian Federation

Politics

Yeltsin Addresses Nation on Summit Results

· Russian President Boris YELTSIN today gave a short radio address to the nation in which he characterized the US-Russian presidential summit in Helsinki last week as a limited success. "The talks were the most difficult in my memory. At times, it seemed to me that we would go away with nothing achieved," he is quoted by Dow Jones as saying.

YELTSIN noted that, although the "gap between our `no' to NATO's expansion and their `yes,' was not fully bridged, Russia did manage to gain some concessions that would "minimize the consequences of this expansion." He pointed to promises by the US that no NATO nuclear or conventional forces will be placed in new members from eastern Europe and a pledge of a "firm and binding" charter that would define Russia's new relationship with NATO.

Meanwhile, presidential advisor Dmitri Ryurikov said that a treaty between Russia and NATO has a 60:40 chance of being signed in the first half of this year, according to an interview published in today's Moskovsky Komsomolets. Ryurikov cautioned, however, that such a treaty may be signed "only on condition that the results of the negotiations are satisfactory to Russia."

RYURIKOV, who accompanied Yeltsin to the Helsinki summit, believes that the economic consequences of NATO's eastward expansion would be very difficult on Russia, estimating that additional expenditures on defense will run at over $100 billion.

"If all the odds are against us, well, the Russians have always been notable for their ability to make sacrifices at certain critical moments," he said.

Today's News Highlights

Russia

Illegal Investment Cos. Revealed

Russia's Gold Sales Revealed

Telecom News Briefs

Timber Imports to US in Trouble

European Republics

US Expels Belarus Diplomat

Motorola Out of Ukraine?

South Caucasus & Central Asia

Brzezinski on the Caucasus

FDI in Azerbaijan Growing

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Intercon sources, the low turnout in the capital may have been influenced by signs appearing throughout Moscow warning people not to leave their houses because of possible violence.

Russian President Boris Yeltsin, who has expressed sympathy with the demonstrators, spent the day at his Gorki-9 residence outside Moscow.

Illegal Investment Companies Revealed

· Russian Interior Minister Anatoly Kulikov told reporters on Tuesday that he has a list of some 1,000 private companies and enterprises that illegally collect "investment" money from individuals, which could be subject to investigation or prosecution by tax and other authorities, reported Itar-Tass. The Russian government recently instructed the Interior Ministry and the Prosecutor General's Office to strengthen control over the illegal investment firms, such as pyramid schemes.

On Tuesday, President Boris YELTSIN, mindful of the situation in Albania, ordered the government to submit a draft law to parliament on improving protection of investors rights and to issue quarterly reports on progress in helping Russians defrauded out of their savings, reported Wednesday's OMRI. About 17-20 million Russians are believed to have lost money in dubious investment schemes.

Russia's Intended Gold Sales Revealed

· A Russian presidential decree (No. 242), obtained by the Journal of Commerce, discloses details of Kremlin plans to sell gold to Russian state enterprises and on the world market. This is the first time that Russia's planned gold sales have become known in advance of trading, said the newspaper in today's edition.

According to the decree, signed on March 17, the following sales are planned: "Three tons of gold to Russian organizations for the production of goods made of gold and containing it, including exported goods"; "31.2 tons of refined gold to the Bank of Foreign Trade to be sold on the world market"; "100 kilograms of alluvial gold which are of no historical or scientific value, and 250 kilograms of gold jewelry of no historical or museum value to the state enterprise Almaz Yuvelir Export to be sold on the world market"; "54.8 tons of refined gold in ingots to the Central

Bank of Russia for the formation of its gold and hard currency reserves."

According to the Journal, the decree indicates that "Russia's Central Bank has lost out in an attempt to take a much larger share of gold production." Central Bank officials said recently that the Bank purchased 90 tons of gold for its reserves in 1996 and would do the same in 1997, but the decree only allocates about 55 tons for Bank reserves.

It should also be noted that Russian gold output this year is forecast at 100-110 tons, but the decree only outlines plans for 89.35 tons.

Business

Russian Telecom News Briefs

· The following telecommunications news briefs were reported by M2 Communications wire service on Wednesday.

US Motorola told Moscow Mayor Yuri Luzhkov recently that it plans to expand its offices in Moscow, St. Petersburg, Novosibirsk, Yekaterinburg, and Izhevsk and intends to further augment its Russian business in Novosibirsk, Yekaterinburg, and Chita, as modernization plans for these telephone systems are implemented. In addition, Motorola has also started the development of an emergency call system using trunk mobile communications in Moscow and other regional centers.

Germany's Siemens has signed a DM30 million contract with the Russian Railways Ministry to provide turn-key equipment and cable for a 2,000 km optical communications line. Terms are not known.

Alcatel telecommunications disclosed that its German branch, Impuls Design Bureau, is providing the first consignment of equipment for a DSC_1800 cellular system in Russia. The company is involved in the installation of the DSC_1800 personal communications system, is responsible for covering all of Russia with the installation of 40,000 lines, and plans to extend its system in the Moscow region.

Court Deals Blow to Russian Timber Imports

· Plans to import untreated timber from Russia into the US suffered a setback with a recent San Francisco court ruling in favor of environmentalists,

When you need to know it as it happens

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reported the Inter-Press Service (IPS) on Tuesday. The court action stemmed from US timber company Louisiana Pacific's import of two test shiploads of raw logs from Russia to the port of Eureka in northern California in 1990. The wood was immediately quarantined by the Animal and Plant Health Inspection Service (APHIS) of the US Department of Agriculture, but was eventually released for processing.

The three environmental organizations took the agency to court in San Francisco, calling the release of the logs environmentally dangerous and arguing that the nation's forests were being exposed to destructive, imported pests through the import of untreated logs.

Louisiana-Pacific officials say that they are not troubled by the court decision, since the timber company currently has no plans to import raw logs from Russia. "In any case we can still import timber products from Russia or other countries so long as they are processed in the country of origin," Louisiana-Pacific spokesman Bill Windes, is quoted by IPS as saying.

WINDES also points out that the processing of wood in Russia may actually cause other environmental problems. "They use methyl bromide...which is an ozone-depleting substance and is being phased out of use here in California," he said.

Environmentalists are also concerned with conditions at treatment facilities in Russia, according to IPS. Several environmental groups say that shipments are routinely mixed up, so that treated logs and other timber are often left out in Russian ports for months at a time, with the likelihood that pests infest them. Also, some heat treatment facilities do not work because of a lack of electricity.

"Mr. GRAMYKA is being expelled for the unwarranted and unjustified expulsion of Sergei ALEXANDROV," said State Department spokesman John DINGER. "Our decision is in retaliation for that provocation."

Ukraine Nuclear, Energy Mins. Out

· Ukrainian President Leonid KUCHMA is preparing decrees dismissing the heads of the countries top nuclear and energy bodies, according to a decision taken earlier this week, reported Reuters. KUCHMA's top aide Vladimir GORBULIN told reporters on Wednesday that Viktor CHEBROV, head of state nuclear agency Derzhkomatom, and Bogdan BABIY, head of the State Oil and Gas Committee, would be removed for failing to address major problems in the energy sector.

Among the problems mentioned by GORBULIN were non-payments for electricity supplied by Ukraine's five nuclear power plants, a shortage of nuclear fuel, and a monopolized system where the government appoints gas traders to supply consumers.

Motorola to Pull Out of Ukraine?

· US Motorola has decided to pull out of the cellular phone market in Ukraine, reported Interfax-Ukraine today, citing a company spokesman. Motorola is "stopping its investment activity" in Ukraine's cellular market because of the "constantly changing conditions" of activities and licensing, it said. Motorola's Ukrainian partner was one of three companies to win the right to launch a GSM_900 standard network at a tender earlier this month. Interfax-Ukraine also quoted the spokesman as saying that Motorola will continue its other activities in Ukraine.

South Caucasus & Central Asia

Dr. Brzezinski on Caucasus Policy

· The US-Azerbaijan Chamber of Commerce held a half-day conference Wednesday in Washington entitled, Caucasus: Choosing Conciliation over Confrontation. During his address on "Caucasus within a geopolitical framework," former National Security Advisor Zbigniew Brzezinski observed that since the collapse of the Soviet Union, modern nation-building among the former Republics has been difficult and, at times, destructive. He believes

European Republics

US Expels Belarussian Diplomat

· The US on Thursday ordered the expulsion of a top Belarussian diplomat from Washington in a tit-for-tat move prompted by Belarus' treatment of a US diplomat in Minsk earlier this week. The State Department said that Vladimir GRAMYKA, a first secretary and political counselor at the Belarus Embassy, was given 24 hours to leave the country.

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that US policy should help channel these national aspirations in positive directions. The Caucasus region is particularly vulnerable to external pressures. Three major powers—Russia, Turkey, and Iran—border the region, while Europe and the US also have interests in the Caucasus. The roles of these states can be constructive or problematic.

BRZEZINSKI identified seven factors which are important to US policy in the region. First, the US must take an active mediation role in Nagorno-Karabakh in order to promote an acceptable solution for all sides. Active mediation requires equal treatment toward each side, but this is currently not the case (because of Section 907). The US should continue to support multiple pipelines in the region. The US should support links between and among any former Soviet republics which wish to maintain their independence, as with recent announcements by Ukraine, Georgia, and Azerbaijan. The US should promote investment in all three Caucasus countries. The US should promote an evolving and more flexible relationship between Turkey and Iran. Lastly, a strong Turkey that plays a strategic role in the region is needed.

To summarize, Dr. BRZEZINSKI believes that the US should actively support national sovereignty and regional cooperation.

At the conference, John Hebst from the US Department of State outlined the four main aims of US policy in the region: promoting democracy and market economies; encouraging these states to join international organizations to help them reintegrate with the world community; promoting peace; and promoting US business interests. He also clearly stated that "nothing more will promote our (US) interests in the region than the repeal of 907" and that membership in the CIS should be voluntary.

Ex-Azeri PM Arrested in Moscow

· Former Azeri Prime Minister Suret Huseinov, who has been accusing of masterminding an abor

tive coup d'etat in Azerbaijan in October 1994, was extradited to Baku from Moscow on Thursday, reported Itar-Tass. He is currently being detained an Interior Ministry detention center in Baku.

Azeri National Security Minister Namik Abasov told Itar-Tass that Huseinov had been arrested by agents of the Russian Interior Ministry assisted by their colleagues from Baku on Russian territory on March 20. The Azeri secret services accuse the former premier of several criminal offenses, including drug smuggling. He is expected to be charged with high treason.

FDI in Azerbaijan Swelling with Oil Deals

· Foreign direct investment (FDI) in Azerbaijan has increased from $15 million in 1993 to $545.5 in 1996, and the Azeri Economy Ministry forecasts that FDI could reach $872 million in 1997, according to a cable from the US Embassy in Baku. International oil contracts contributed about 80 percent of total FDI, with international and regional lending agencies accounting for much of the remainder.

Foreign investment is providing some 70 percent of total investment in Azerbaijan's economy. The government of Azerbaijan is currently seeking investors for a number of major enterprises including the non-ferrous metals works in Gyandzha ($4.5 million needed); the Baku steel foundry ($1.7 million); and a medical equipment plant ($20 million).

UK Co. Wins Kazakh Power Grid Tender

· The government of Kazakhstan has accepted a bid from Britain's National Grid Group to manage, operate, and develop its high voltage transmission system, reported today's Financial Times. National Grid, which owns the transmission system in England and Wales, will pay $30 million for a 25-year concession. National Grid said an urgent task would be to provide metering of electricity interconnectors with neighboring states, particularly Russia, according to FT. Kazakh authorities believe revenue is being lost because of poor accounting for exports.

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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