DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 908,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, March 3, 1997

According to Friday's Moskovsky Komsomolets, presidential chief-of-staff Anatoly CHUBAIS has stepped up his efforts to discredit and push for the removal of Prime Minister Viktor CHERNOMYRDIN. On Thursday, all newspapers in the Russian region of Tambov carried an open letter to YELTSIN which criticizes the work of CHERNOMYRDIN's government and calls for former reformist premier Yegor GAIDAR to be reinstated.

The letter was signed by the "SDO (Union of Democratic Organizations) Representatives Council," a group actively supporting Tambov city mayor Valery Koval who has close ties to CHUBAIS. MK sees the letter as an attempt to influence YELTSIN before this week's address to parliament, which is expected to reveal promised government personnel changes.

Primakov to US Before Summit

· During a meeting on Sunday, Russian President Boris Yeltsin asked Foreign Minister Yevgeny Primakov to visit the US ahead of a planned summit with US President Bill CLINTON on March 20 in Helsinki, said the presidential press service. Primakov briefed the president on his recent trips to Brussels, Oslo, Copenhagen, and London, where he discussed NATO expansion and the details of a special relationship between Russia and NATO.

PRIMAKOV reported that some progress had been made in certain areas, but NATO countries have still not agreed to make the treaty legally-binding, a provision demanded by Russia.

Russian Federation

Politics

Government Power Struggle Intensifies

· As the time for Russian President Boris YELTSIN to reshuffle the government nears, the behind-the-scenes maneuvering for power is becoming increasingly furious. The Russian press is part of this struggle, publishing revelations about the man considered likely to be chosen as the next defense minister and allegedly uncovering an episode from the battle for authority in the Kremlin.

According to Friday's Moskovsky Komsomolets, a presidential decree has already been drafted in the Defense Ministry's Main Personnel Directorate, appointing Colonel General Chechevatov, commander of the Far East Military District, to the position of defense minister. The paper notes however, that Chechevatov is notorious for several sensational episodes in his career.

He is alleged to own huge dacha in Bakovka, near Moscow, built right across from another palatial home owned by the son-in-law of the former hawkish Defense Minister Pavel Grachev. Moreover, CHECHEVATOV is being investigated for feeding dog food to his troops and has allowed the military facilities in his district to be "ruined and plundered."

The paper points out that Chechevatov is generally regarded as a Grachev man, referring to the former defense minister who was often connected to corruption scandals.

In a possible indication of Rodionov's imminent demise, the Defense Minister canceled a planned trip to Georgia this week, reported Interfax. Last week, he called off a trip to Armenia, due to begin today, without stating a reason.

Today's News Highlights

Russia

Economist Shatalin Dies

US Aid to Russia Stolen

Privatization Revenues in 1996

Deutsche Bank Plans for Russia

NIS Short Takes

South Caucasus & Central Asia

Azerbaijan Begin Privatization

Solana to Central Asia

Kazakh For. Investment Law

Bridas in Kazakh Gas Deal

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Perestroika Economist Shatalin Dies

· Prominent Russian economist Stanislav Shatalin died suddenly this morning at the age of 62, reported Itar-Tass, citing the Reform Foundation, which SHATALIN had headed since 1990. SHATALIN is best known for co-authoring, with Grigory YAVLINSKY, the 500 Days program for a rapid transition from socialism to a market economy in 1990. The program was rejected by then-Soviet President Mikhail GORBACHEV, but many of its components were included in the early reform efforts of Russian President Boris YELTSIN after the breakup of the Soviet Union.

Economy

Ruble = 5,683/$1.00 (NY rate)

Ruble = 5,683/$1.00 (CB rate)

Ruble = 5,673|5,693/$1.00 (buy|sell rates)

Privatization Revenues in 1996

· Russia's proceeds from the sale of state and municipal property in 1996 totaled 3.2 trillion rubles, a decrease of 15 percent from 1995 revenues, according to State Statistics Committee (Goskomstat) figures, cited by Prime-Tass today. The largest proceeds from privatization came from the cities of Moscow and St. Petersburg, and the Samara, Tyumen, Moscow, Sverdlovsk, Kemerovo, Chelyabinsk, and Nizhny Novgorod regions. A total of 126,800 enterprises have been privatized in the last few years. Last year, 4,997 enterprises, employing 519,000 workers, were privatized.

US Aid Money for Russia Stolen

· A bag containing $2.5 million worth of US aid money to Russia was stolen last week from London's Heathrow airport, reported Deutsche Press Agentur, citing Scotland Yard. The cash, part of a $10 million shipment, was taken from a high security cargo compound before it could be loaded on a plane to Moscow. The other three bags were intact.

The bills belonged to the Republic National Bank of New York—one of the banks used by the US government to transport twice-weekly aid shipments to Russia. The bags were being sent from the Bank's Manhattan office to Tokobank in Moscow. It is unclear why such a large amount of cash was being transported by hand rather than via wire transfer.

Business

Deutsche Bank Plans Russia Office

· Germany's Deutsche Bank plans to open a full banking operation in Russia later this year, reported Reuters. Georg KRUPP, management board member responsible for Russia, told the news agency that Deutsche has applied for a general banking license to convert its Moscow representative office into a full bank. Deutsche Bank was the first Western bank to be licensed to run a representative office in the former Soviet Union 25 years ago.

Deutsche's investment banking division, Morgan Grenfell, has been operating in Moscow with an investment banking license since 1995, but it mainly focuses on trading government securities and shares. "We intend to expand our activities...to cover all bank activities" as a commercial bank, said KRUPP.

Luzhkov Bans Foreign Words from Moscow

· In a French-style cultural protection move, Moscow Mayor Yuri LUZHKOV has banned the use of foreign terms—read English—from use by city retailers, reported the weekend Financial Times. A decree signed last week sets out detailed regulations for shopkeepers, prohibiting such terms as "mini-market" and "superstore." Failure to comply by June 1 will result in a fine of up to four million rubles.

In addition, city officials told FT that they are preparing a regulation which would require all businesses which use the city's name or any of its emblems as trademarks to pay 0.5 percent of their revenues to the Moscow city government.

South Caucasus & Central Asia

Azerbaijan to Begin Voucher Privatization

· The Azeri government on Saturday began handing out privatization vouchers to each of its eight million citizens, inaugurating a long-awaited sell-off of state property, reported Reuters. Some 70 percent of all state-owned enterprises, with a total value of 49 trillion manats ($12 billion), will be privatized. The other 30 percent of industry, including oil sector enterprises, will remain in government hands.

Each Azeri will receive four vouchers that can be exchanged for shares in state-owned companies or

When you need to know it as it happens

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NIS SHORT TAKES

n Baltimore-based Ashurst Technology Ltd. announced that it was selected by Ukrainian state gold company Ukrzoloto to consult on the development of the gold-mining and processing industry in Ukraine. Ashurst said it reached a preliminary agreement with Ukrzoloto to develop five gold-mining projects in Ukraine. Ashurst develops and markets advanced materials and technology from Ukraine and North America.

n Ukrainian nuclear power plants produced seven billion kilowatt hours of electricity in February, which is 44.8 percent of the country's overall electricity output. Twelve out of 15 reactors are operational at Ukraine's five nuclear power plants.

n Ukraine has agreed to lease Russia two ballistic missile early warning stations in exchange for supplies of spare parts for its air defense force. The deal for the bases, located in Mukacheve and Sevastopol, was signed on Friday. Russia will pay about $4 million a year.

n A consortium headed by the Malaysian firm Mega Meisa will build and operate a $1.3 billion coal-fired power plant in Kazakhstan.

n Germany's Lufthansa recently withdrew landing and take-off rights at Almaty airport to the country's national carrier. Lufthansa, which has been the airport's operator since a tender last year, acted after the Kazakh airline ran up a servicing debt of eight million tenge ($100,000). Eventually, the debt was paid, and the carrier's rights restored, but not before government intervention and media criticism of Lufthansa.

n Monthly inflation in Kazakhstan was 2.1 percent in January, following an increase of 0.8 percent in December 1996. Annual inflation in 1996 totaled 26.2 percent. Industrial output in Kazakhstan dropped 7.4 percent in January, but was still 0.3 percent higher than the first month of 1996.

n Uzbekistan introduced a new banknote, the 200-som bill, into circulation on March 1, 1997. The banknote is currently equivalent to 20,000 rubles. Uzbekistan's som currency was introduced about two years ago. At that time, Uzbekistan introduced 1, 3, 5, 10, 25, 50, and 100 som banknotes.

traded on the secondary market. State Property Minister NASIBOV said the market would set the value of the vouchers, but he expected a secondary trade starting price of $200 each, or $800 a booklet. The voucher plan has been criticized by some analysts as ill-conceived and poorly organized and it is suggested that the price of vouchers will fall drastically in a short period of time.

Western Pipeline Work to Begin

· Azerbaijan International Operating Company (AIOC) president Terry Adams told reporters on Friday that construction of an export pipeline for Caspian Sea early oil output via Georgia will cost $315 million, reported Itar-Tass. Work on the pipeline between Baku and the Georgian Black Sea port of Supsa will start in March 1997 and be complete in December 1998, he said. The pipeline will have a capacity of 115,000 barrels of oil per day.

The project will include the reconstruction of 601 kms of an Azeri-Georgian pipeline, new construction of 258 kms of pipeline, a ground-based oil terminal in Supsa, sea-based oil facilities, five pumping stations, and two stations for lowering pressure, telecommunications, data systems, and cathode protection. Some $150 million will be spent in 1997.

The leading participants in the project will become known in two weeks, when the results of a tender for the project are announced, said ADAMS

NATO's Solana to Central Asia

· NATO Secretary-General Javier Solana will make official visits to Central Asia next week, as part of his program to visit all Partnership for Peace members, said a NATO press release. He will begin in Kazakhstan on March 10, and travel to Kyrgyzstan and Uzbekistan, before concluding his trip in Turkmenistan on March 14-15. In February, SOLANA visited Moldova, Georgia, Armenia, and Azerbaijan, prompting a firestorm of criticism from Russia, which accused NATO of having an secret objective.

SOLANA's latest trip to former Soviet republics will follow a third round of talks on NATO expansion with Russian Foreign Minister Yevgeny Primakov in Moscow on March 8 and 9.

Kazakh Media Tender Winners Announced

· Kazakh government officials have announced

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When you need to know it as it happens

Monday

March 3, 1997

Intercon's Daily

the results of the first round of a tender for broadcasting channels, said the Economist Intelligence Unit (EIU) on Friday. Internews and Kazakh Television reported that channel rights were awarded to Kazakh Commercial Television (KTK) and the Independent Television Channel (NTK). KTK is owned by Karavan, which publishes an independent newspaper, but reportedly has links to the daughter of President Nursultan Nazarbayev.

Radio frequencies were given to the stations Europa, Siti, and Rika. A second tender will be held later this year. Russian Television announced recently that its broadcasts have been pulled off the air in Kazakhstan and replaced with programming from the country's state television agency Habar.

Kazakh Law on Foreign Investment

· Kazakh President Nursultan Nazarbayev on Saturday signed a law that provides state support for foreign investment in the country, reported Itar-Tass. The law provides benefits for foreign investors operating in parity sectors of the economy and simplifies the procedures for launching a new business in Kazakhstan.

Under the law, foreign entrepreneurs and business people will be partially or completely exempt from taxes for the first five years of their operation in Kazakhstan and then enjoy substantial tax benefits for another five-year period. They will also get customs benefits for the delivery of equipment, goods, and raw materials needed for the implementation of investment projects in Kazakhstan.

In an effort to reduce red tape and corruption, foreign investors will have to deal with only one Kazakh agency, a committee for direct investment set up specifically for this purpose.

Bridas Gets Kazakh Gas Contract

· The government of Kazakhstan has awarded a contract to Argentine energy firm Bridas to operate its national gas pipeline system, reported Lloyds List

on Saturday. The pipeline system handles 50 billion cubic meters of gas a year and is of crucial importance to the transport of gas westwards and eastwards. The details of the Bridas award have yet to be finalized. A ministerial working group has been established and is expected to reach its conclusion on April 23.

Japanese Loan for Kazakh Bridge

· Japanese officials on Friday signed an agreement to extend a 30-year loan for 21.5 billion yen (about $188 million) to Kazakhstan, reported Xinhua, citing Kazakhstanskaya Pravda. The credit, earmarked for building a bridge over the Irtysh River in Semipalatinsk province, was initially agreed upon last year during Kazakh Prime Minister Akezhan Kazhegeldin's tour of Japan.

In addition, Japan has pledged to provide another loan of 457 million yen ($400,000) to help Kazakhstan rebuild its famous Medeo mountain skating rink, near Almaty.

EBRD Loan for Uzbek Banking

· The European Bank for Reconstruction and Development (EBRD) has extended a $120-million credit line to assist Uzbekistan's banking sector, reported Itar-Tass today. A medium-term credit will be granted to the National Bank for Foreign Economic Activity and to Asakabank financial company, which was set up about a year ago, when the construction of the Asaka car factory was started.

Updates

Chechnya: The New York-based Overseas Press Club of America on Friday called on Russian President Boris Yeltsin to seek the release of an Italian photojournalist abducted in Chechnya, said an OPC press release. Mauro GalligaNi was reportedly abducted in Grozny on February 23 by four masked men although an Italian newspaper correspondent, a driver, and an interpreter in a car with him at the time were released.

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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