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 5, 1997

Some opponents of the measure argue that the ban would aggravate prison overcrowding, one of Russia's graveest human rights problems.

A recent report by the international watchdog group Human Rights Watch said that Russia executed 63 people sentenced to death after it joined the Council of Europe, violating the Council's Charter. In addition, overcrowding, and inhumane conditions and treatment of prisoners in Russian jails worsened over the last 12 months, it noted. It cited statistics showing that Russian prisons held 285,000 people at the end of 1996, although space permits only a maximum of 177,000. As a result of overcrowding and poor conditions, the death rate in Russian prisons exceeds the world average by 17 times.

More Journalists Kidnapped in Chechnya

· Four Russian journalists were abducted in Chechnya on Tuesday evening. Sources in the Chechen Interior Ministry told Itar-Tass today that unidentified gunmen seized Itar-Tass correspondent Nikolai Zagnoiko and three Radio Rossii employees—reporters Yuri Arkhipov and Nikolai Mamolashvili, and radio operator Lev Zeltser.

The gunmen reportedly shot out the tires of the car in which the journalists were returning home, after interviewing Chechen Interior Minister Kazbek Makhashev, and forced them into another car at gunpoint. According to the latest reports from Grozny, MAKHASHEV was urgently summoned to

Russian Federation

Politics

More Govt. Reshuffling Possibilities

· Russian newspapers Segodnya and Moskovsky Komsomolets reported today that presidential chief-of-staff Anatoly Chubais will rejoin the Cabinet as a first deputy prime minister in the government reshuffle, to be announced on Thursday. The return of CHUBAIS, who was privatization minister in the government of Yegor GAIDAR, would anger the parliament, but provide new optimism on Russian reform efforts to international financial agencies.

MK suggested that the most likely candidate to replace CHUBAIS as presidential administration head is Nizhny Novgorod Governor Boris Nemtsov.

In addition, Russian Prime Minister Viktor CHERNOMYRDIN today criticized Finance Minister Aleksandr LIVSHITS over a newspaper interview, fueling speculation that he will be a victim of the upcoming government purge, reported Reuters. "If it is true what is written in the newspaper, then it is gross misconduct on behalf of the finance minister. We will not tolerate this," CHERNOMYRDIN told the upper house of parliament.

LIVSHITS told the Argumenty i Fakty weekly that regional governors should not divert government funds, intended to pay pensions, to other purposes, and complained about intense lobbying of the Finance Ministry by regional officials.

Russia Moves to Abolish Death Penalty

· The Russian government has sent a law to the State Duma that proposes a ban on the death penalty, reported Interfax on Tuesday. Russia pledged to abolish capital punishment when it joined the Council of Europe in January 1996.

Today's News Highlights

Russia

Short Term Bonds Proposed

Gold-Mining Project in Yakutia

Russia Short Takes

US to Invest $1 Bln in Telecoms

Turkey in Moscow Project

European Republics

Ukraine Small Bus. in Trouble

Estonian Businessman Killed

South Caucasus & Central Asia

Kazakh Cabinet Streamlined

Politics-Economics-Business

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Wednesday

March 5, 1997

Intercon's Daily

President Aslan Maskhadov today to discuss the most recent kidnapping.

The Russian Security Council views the abduction of journalists in Grozny as an element of a "major political game" played by the opponents of the peace process and President Maskhadov, according to Security Council spokesman Igor Ignatyev. "An unbridled campaign against the negotiating process, which has suddenly acquired tangible parameters and has begun to yield first specific fruit, and against President Maskhadov is being mounted by the people who waxed rich on the war, and they will not disdain to use any means," he stressed.

Yeltsin's Court Nominee Rejected

· Russia's Federation Council (upper house of parliament) today failed to gather sufficient support to appoint Mikhail Fedotov to the country's Constitutional Court, reported RIA Novosti. FEDOTov was nominated by President Boris Yeltsin and presented to the Council by Prime Minister Viktor Chernomyrdin, but received only 54 votes in his favor, while 69 legislators voted against him and 19 abstained from voting.

This is the second time that Fedotov's nomination to the Constitutional Court has been rejected; the first was in fall 1991. He is currently Russian Ambassador to UNESCO.

Economy

Ruble = 5,696/$1.00 (NY rate)

Ruble = 5,689/$1.00 (CB rate)

Ruble = 5,680|5,698/$1.00 (buy|sell rates)

Chernomyrdin Wants Long-Term Bonds

· Russian Prime Minister Viktor CHERNOMYRDIN met with the heads of Russia's largest commercial banks today and proposed placing long-term (one-year) government securities at commercial banks, reported Russian television RTV. The meeting was attended by First Deputy Prime Minister Vladimir Potanin, Finance Minister Aleksandr Livshits, and Central Bank chairman Sergei Dubinin. The bankers welcomed the premier's proposal and discussed ways to expand cooperation between the government and banks and to improve the economic situation in the country.

Gold Mining Project in Yakutia

· A feasibility study on the development of the Kuranakh gold field, located in the southern part of Russia's northeastern Siberian Republic of Sakha (Yakutia), suggested that it could become the world's largest gold mining enterprise, reported Itar-Tass. The study, conducted by the Sibgirpozoloto Institute in Novosibirsk, estimates that the mine could produce about 13.5 tons of gold annually.

Development of the field is scheduled to begin on four open-cast sites which could yield up to 20 million tons of ore a year, the project's chief engineer Valentina Reimer told Itar-Tass. At that rate, the ore stocks will last for 16-25 years, she said. Capital investment needed for the project is estimated at $209 million. Reimer said the project will be implemented by a joint Russian-American enterprise.

Business

US Firm to Invest in Russian Telecoms

· The Russian Communications Ministry and Russian telecommunications holding company Svyazinvest have signed an agreement with US Russian Telecom Investors Fund (RTIF) under which RTIF will provide up to $1 billion in capital over the next five years to modernize Russia's telecommunications systems using the latest wireless technologies, reported Business Wire today.

The New York-based Fund was formed in 1996 by Americas Partners to invest in wireless telephone, interactive data, and video systems that will address Russia's 20 million telephone line backlog and a wait of up to 10 years for a private telephone in Russia. The Fund's first investments will be made in CellularVision of Russia (CVR), a joint venture between the Russian Communications Ministry, the Moscow city government, and US CellularVision Technology & Telecommunications L.P. The venture has a strategic alliance with Svyazinvest, which will market the wireless technology via its network.

The Russian government aims to use the new agreement to assist President Boris YELTSIN's Popular Telephones project, which plans to offer affordable telephone service to every private home in Russia. The Russian government is actively supporting CVR as a low cost, wireless alternative to

When you need to know it as it happens

Politics-Economics-Business

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Wednesday

March 5, 1997

Intercon's Daily

RUSSIA SHORT TAKES

n European Union (EU) member-states account for up to 45 percent of Russia's foreign trade. Some 40 percent of Russian exports go to EU markets, compared to four percent which go to the US, according to EU statistics.

n During recent talks in Moscow, the EU said it is concerned about the problem of air transportation over Siberia. During 1996, Western airlines paid Russia $200 million in taxes to fly over Siberia. This year the figure is expected to rise to almost $300 million. European companies do not reject the tax, but in return for paying it they want an acceptable level of service and high quality flight maintenance.

n Railway passenger and cargo fares in Russia have been increased by an average of 10 percent.

n As of January 1997, the average personal income in Russia equaled 829,600 rubles ($147), which is 30 percent more than in January 1996. According to the State Statistics Committee, the actual income of the population increased by nine percent, taking inflation into account.

n Japan's Sumitomo has awarded a 20 billion yen ($161 million) order for four double-hulled tankers to the Novorossiisk Shipping Company.

n Germany's Herlitz International Trading plans to pull out of its joint venture with the Volga paper mill. After a promising start to the venture, the company blamed falling paper prices and high energy and transportation costs for the withdrawal, which will take place within the next two years.

n US Afrex has signed a protocol of intent with the Nizhny Novgorod city government to build an international business center in the city. Afrex's partners in the $55 million development project are expected to include US Marriott and the International Finance Corporation (IFC).

n Russia's most ambitious politician Aleksandr Lebed held a founding congress for his new People's Republican Party in Chelyabinsk Oblast last week. "I am creating a party of proprietors, a party of the middle class which cements the society," he told participants.

spending $40 billion upgrading the country's existing infrastructure. According to the Communications Ministry, only 17 percent of the population has any phone service and only 7-8 percent have the ability to call between cities and internationally.

Intercon reported in January 1997 that Russia's Communications Ministry had awarded CellularVision of Russia an exclusive, 10year renewable federal license to begin providing television service, data transmission, and local, long distance, and international telephone service throughout Russia. Under this license, CVR will become the third major national provider of telephone services in Russia, after Svyazinvest and Rostelekom.

CVR was also awarded a large block of frequency spectrum (2GHz) over which to offer telephone service via its Local Multipoint Distribution Service (LMDS) wireless technology. In addition to the FM spectrum, CVR will have access, at a nominal cost, to 200,000 excess trunklines, which are being freed up by the Russian military, a military teleport, and Russian communications satellite transponder capacity, said Business Wire.

Under the agreement with RTIF, the Communications Ministry and Svyazinvest have agreed to provide 100,000 subscriber lines to CVR in Moscow and St. Petersburg, for immediate implementation, and up to eight million lines through 2006.

Turkey in Moscow Construction Project

· Turkish construction firm Concoor International will invest $200 million in a planned international business complex, to be called Moscow City, on Moscow's Krasnopresnenskaya embankment, reported Interfax. Concoor will act as general contractor for the construction of the complex.

Boris TKHOR, Moscow City's project director and chief designer, said the complex will have a four-level underground parking lot and a subway stop. The complex will include 166,000 square meters of commercial space, including a retail area, warehouse facilities, exhibition halls, and auditoriums.

According to the Moscow government, the money will be granted as a 10-year loan. Concoor will also provide $10 million in financing for the completion of the reconstruction of the Gostiny Dvor complex.

When you need to know it as it happens

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Wednesday

March 5, 1997

Intercon's Daily

European Republics

Ukraine Small Businesses in Trouble

· Corruption and red tape are strangling small-scale private enterprises that could help pull Ukraine out of its economic crisis, reports Xinhua. "To open a small business, you must hand out nearly $2,000 in bribes, or you won't get the opportunity to work," Ukrainian Deputy Prime Minister Viktor PYNZENYK is quoted as saying. In addition, legitimate permits cost nearly another $1,000, of which $185 goes for registration and $730 for a business license and other approvals. As a result of these high fees, few new entrepreneurs in Ukraine have sufficient capital to start up a business and succeed.

According to Natalya Rozhevina, head of the Association of Small Enterprises in Ukraine, only 13 percent of the 10,000 small firms registered in Kiev are viable. "The majority of survivors are hardly flourishing—taxes and bureaucrats get in the way," Xinhua quoted her as saying. The 150,000 small businesses in the country report revenues amounting to just 3.7 percent of gross domestic product.

Most analysts consider the main obstacle to the development of small businesses in Ukraine to be poor government policy. "Small enterprises are having a hard time because it's difficult to rid mid-level officials of Soviet ideas that cannot grasp the concept of private ownership," said Aleksandr Paschver, economic adviser to President Leonid Kuchma, is quoted by Xinhua as saying.

A recent study by the International Finance Corporation (IFC) found that small businesses account for a declining proportion of Ukraine's legally-registered enterprises. Small firms accounted for 49 percent of all companies in 1992, 37 percent in 1994, and just 31 percent in 1995. Andreas Nils, chief of the IFC's privatization project, said small private enterprises employ just five percent of Ukraine's workforce, compared with 20 percent in Russia, and 70 percent in Western Europe.

Businessman Bombed in Estonia

· A remote-controlled bomb exploded in downtown Tallinn on Tuesday evening, seriously injuring an Estonian businessman who allegedly has ties to criminal organizations, reported Itar-Tass. The bomb was planted in a trash can near the entrance of a sports club frequented by the victim, Mezlis Lao. The bomb went off as Lao, 30, left the club and walked towards his car.

Last year, LAO survived another attempt on his life at the same place by unidentified gunmen, who seriously wounded him with automatic weapons.

South Caucasus & Central Asia

Kazakh Cabinet Streamlined

· Kazakh President Nursultan Nazarbayev this week has begun a major reorganization of his government, reducing the number of ministries and cutting staff in an effort to improve efficiency and save money. On Monday, the president dismissed seven of his 21 ministers, reported Agence France Presse (AFP). He said that the firings were part of a much-needed cutback of the country's bureaucracy, noting "there are one million officials out of a population of 16 million."

A presidential decree signed Tuesday reduces the number of government staff by half, the number of ministries from 21 to 14, ministerial level committees from 13 to four, and other government institutions by almost two-thirds from 14 to five, reported Xinhua.

The Ministries for the Economy, Trade and Industry, Housing and Construction, the State Committee for Prices and Anti-Trust Policy and for Statistics and Analysis will be merged into the Ministry of Economy and Trade. The Ministries of Culture, Education and Youth, Tourism and Physical Culture and the State Commission of the National Policy will be merged into the Ministry of Education and Culture. The reforms, the result of several months of study, will also be extended to the local government level.

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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