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 6, 1997

Reaction to Yeltsin Speech

· Responding to Russian President Boris YELTSIN's address to the parliament today, State Duma chairman Gennady Seleznyov described the president's message as "far more realistic than the previous ones, reported Itar-Tass. "We are looking forward to the president's words to be followed by concrete actions," he said.

Former Prime Minister Yegor GAIDAR told RIA Novosti that YELTSIN's 1997 speech "advantageously differs from the previous one since it is specific, binding, and reflects the basic priorities of the economic policy which are really very important to be implemented today." He noted, however, that fulfillment of YELTSIN's promises will depend on "political will." Asked about his possible return to a government post, GAIDAR said that this would "be inexpedient."

Government Personnel Changes Delayed

· Defying expectations, Russian Prime Minister Viktor CHERNOMYRDIN said today that the details of a planned government reshuffle would not be announced for another few days. ""There will definitely be changes.... There will be a series of changes in the coming days," he is quoted by Reuters as saying, following a government meeting.

Duma Passes Law on Political Opposition

· The Russian State Duma on Wednesday voted 266-48, with one abstention, to pass a federal law guaranteeing the right of opposition activity in Russia in the

Russian Federation

Politics

Vibrant Yeltsin Addresses Parliament

· Russian President Boris Yeltsin, looking healthier and speaking longer and more forcefully than he has in months, today gave his annual State of the Nation address to both houses of parliament. Yeltsin promised to restore order to the country and restructure his government, although he put off announcing specific government personnel changes for a few day. "Order in the country will begin only after order in the state mechanism itself is restored," he said. Today, "we have a real chance to make a transition from intransigent public struggle to normal political life, from confrontation to cooperation."

Yeltsin touched on falling living standards, the federal budget, economic crime, official corruption, amendments to the Constitution, tax reform, the government's regulation of the market, the free rein of natural monopolies, military reform, pension arrears, NATO expansion, and Russian-Belarussian integration, among other topics.

Highlights include his pledges to: achieve two percent GDP growth this year; reduce the budget deficit to zero in 1999; eliminate conditions conducive to crime; punish high-level officials for corruption; adopt a new tax code; impose strict state control over electricity, gas, railway monopolies; pay off pension arrears by June 30 and reform the pension system; and build closer relations with Belarus.

Essentially, all of these promises have been made before. A real sign that YELTSIN intends to try to make good on them this time would be a significant change to the government. Including in the Cabinet the well-known and controversial architect of privatization, Anatoly CHUBAIS, would be a positive step.

Today's News Highlights

Russia

February Inflation at 1.5 Percent

Russians Buy Up Dollars

Soros Reversal on Russia

National Media Expands to TV2

European Republics

Lukashenko Bans Protests

New Moldovan Parl. Head

South Caucasus & Central Asia

IDA Loans for Georgia

Kazakh Government Changes

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Thursday

March 6, 1997

Intercon's Daily

third reading, reported Itar-Tass. The law protects the right of individuals to offer an alternative to the political course pursued by Russian president and government. Among the provisions in the law is the right of opposition legislators to set up a shadow cabinet. If one third of Duma deputies approve of the shadow cabinet, its members can be invited for hearings in executive branch meetings with a consultative vote.

The law now goes to the Federation Council for approval, but even if it is passed there, it is unlikely to be signed by President Boris YELTSIN. According to Wednesday's OMRI, YELTSIN will probably veto the bill on the grounds that it violates the separation of powers and because rights such as freedom of speech and assembly are already included in the Russian Constitution.

Economy

Ruble = 5,698/$1.00 (NY rate)

Ruble = 5,691.5/$1.00 (CB rate)

Ruble = 5,683|5,700/$1.00 (buy|sell rates)

February Inflation at 1.5 Percent

· Russian monthly inflation in February was 1.5 percent, down from 2.3 percent in January, according to the State Statistics Committee (Goskomstat). In February 1996, monthly inflation was 2.8 percent.

Last month, prices for services increased by 2.5 percent, food prices went up by 1.5 percent, and non-food prices grew by 0.7 percent.

Russians Buying Up Dollars

· The US dollar is again on the offensive against the Russian ruble, according to Thursday's Moskovsky Komsomolets. The paper noted that, as it had earlier predicted, because of the reduction in the interest rate of Russian commercial banks and the drastic state of the economy, people no longer have faith in the long-term buying power of the ruble and try to convert their ruble salaries into dollars as soon as possible.

Approximately 30 trillion rubles, or 24.4 percent of the Russians' monetary incomes in January were spent on foreign currency. The total income of the Russian population in January, according to the State Statis

tics Committee (Goskomstat), amounted to 121.6 trillion rubles.

According to Goskomstat, the share of ruble salaries spent on hard currency began to grow early last year. While the population spent 14.3 percent of its earnings to buy hard currency in 1994, the figure was 18.5 percent in 1996 with the percentage growing steadily from 14.3 percent in the first quarter of the year to 21.7 percent in the fourth. Now this share has grown to some 25 percent of total income.

Soros Changes Stance on Russia

· Billionaire financier George SOROS admitted on Wednesday that he may have underestimated the potential of the Russian stock market last year, reported Dow Jones. Speaking before the economic club of New York, SOROS said he had feared that the political risks in Russia were too great, but he now notes that the Russian market continues to gain legitimacy among investors. "Everything hangs on the heartbeat of one man. If YELTSIN died, there would be a serious change in regime or turmoil," he is quoted as saying.

Business

National Media Expands in Russia

· US National Media Corp. announced today that it has begun transactional television programming on Russian television station RTR (TV2), reaching 67 million television households in Russia, Belarus and Ukraine, said a company press release. National Media's transactional television programming has been available on TV6 in Russia to 12 million television households in Moscow and its environs since early in February. The expansion adds 55 million new households to that base.

Programming in the three countries will air four days per week across the market's 10 time zones. The three markets are some of the fastest growing television populations in Europe. With a population of approximately 210 million, the market is approximately 80 percent the size of the US television market and has the potential to be Europe's largest television audience. Since the breakup of the Soviet Union, hundreds of independent television stations have emerged to serve this area and consumers have responded positively to television advertising.

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RUSSIA SHORT TAKES

n The Russian government has recommended Fuel and Energy Minister Igor RODIONOV to serve as chairman of the board of the state electricity monopoly Unified Energy Systems (UES).

n German companies invested DM138 million in the Russian economy in 1994, DM115 million in 1995, and DM31 million during the first half of 1996, according to German figures. Germany ranks third among investors in the Russian economy, after the US and UK. German officials say the biggest obstacle to investment in Russia is the incomprehensible and unpredictable taxation system.

n German floor coverings manufacturer DLW, frustrated by fluctuating tariffs in Russia, is considering withdrawing from a joint venture in Yekaterinburg. Imported raw materials, which previously were untaxed, are now subject to customs duties of 10 percent and value-added tax of 20 percent.

n Representatives of South Korea's Daewoo recently visited the Samara Metallurgical Company (Sameko), a rolled aluminum producer, to discuss potential investment and cooperation.

n Russian state airline Tarom signed an $8 million joint venture agreement with Air BP, the aviation fuels arm of British Petroleum, to upgrade aircraft fueling procedures at Russian airports.

n Russia's Rossiisky Kredit bank and the Magadan Oblast government have signed an agreement on the construction of a gold refinery in the region.

n The Russian Communist Party was founded in June 1990. In March 1993, the party was registered by the Justice Ministry. It now has over 500,000 members in 20,000 primary organizations. The party publishes 120 newspapers and magazines and has ties with over 150 parties and movements around the world. Its faction is the largest one in the State Duma with 139 deputies.

n Russia ranks second to last among CIS countries on road density with only 937,000 kms of roads. Up to 150 district centers and some 300,000 small- and medium-sized localities still have only dirt roads. Several million Russians are isolated from the outer world during fall and spring.

Russian Oil Company Outlook Good

· Over the next 3-5 years, the earnings and cash flows of most Russian oil companies should rise in conjunction with improvements in the Russian economy and the lowering of taxes, said Credit Suisse First Boston vice-president Stewart AMOR, according to Dow Jones. Speaking Wednesday at a conference on investing in Russia, AMOR noted that taxes are currently the biggest problem facing Russian oil companies. These companies pay 50-55 percent of their gross revenues in taxes, compared with only 30-40 percent paid by Western companies.

A new tax code is expected to be adopted in Russia in 1998, but it is unlikely that the tax situation for oil companies will change dramatically in the short term because the Russian government is strapped for cash, said AMOR.

Siemens Success in Russia

· Germany's Siemens has made total investments worth DM250 million in Russia during the last five years and its total trade turnover on the Russian market was DM845 million, Siemens representative in Russia Robert Schmid told Itar-Tass on Tuesday. During the last fiscal year, the company received contracts worth more than one billion marks from Russia and currently has 10 joint ventures operating successfully there.

Major projects include a recent contract worth DM180 million signed with the Oskol electro-metallurgical plant in the city of Stary Oskol. Under the contract, Siemens will participate in the reconstruction of a plant to produce various types of steel, as well as in modernizing its rolling-mill built in the 1980s.

Last year, Siemens, in conjunction with the All-Russia Automation Research Institute, had set up production of components used in automatic systems for electric power plants.

It also has several transport projects. The new Russian-German tram, jointly constructed by the Ust-Katav carriage-building plant, has conducted successful test runs, said Schmid. The first Russian-German trolleybus will be manufactured by an Engels-based trolleybus plant and put into use in Moscow. Another contract has been signed for Siemens to install medical equipment in the lung-surgery hospital in Novosibirsk.

When you need to know it as it happens

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European Republics

Lukashenko Bans Demonstrations

· In an attempt to crack down on the frequent anti-government protests in Minsk, Belarus President Aleksandr Lukashenko has issued decree placing strict regulations on public protest actions, reported Itar-Tass. The decree prohibits street demonstrations involving unregistered emblems, flags, or posters that infringes on the honor and dignity of senior officials. During a protest last week, demonstrators carried the former flag of Belarus, which was officially replaced last year by LUKASHENKO with Soviet-era symbols.

In addition, protests are banned within 50 meters of embassies, courts, prosecutor's offices, and defense- and security-related enterprises. Demonstrators can't come within 200 meters of parliamentary and government buildings, TV and radio companies, and presidential residences. Also, actions that prevent normal traffic are prohibited. Applications to hold demonstrations must be submitted no less than 15 days prior to the scheduled event. Violations will result in a fine equivalent to 300 minimum wages or imprisonment for up to 15 days.

New Moldovan Parliamentary Head Elected

· On Wednesday, Dmitru Motpan, head of the ruling Agrarian Democratic Party, was elected new Chairman of the Moldovan Parliament, reported Xinhua. Motpan replaces Petru LucinsCHI, who was elected president of Moldova last December and took office on January 15. Motpan, 57, was elected a member of parliament in 1990. He won re-election in 1994 and was subsequently named deputy parliament speaker.

South Caucasus & Central Asia

IDA to Provide Loans for Georgia Power

· Georgian officials and the World Bank's International Development Association (IDA) signed preliminary agreements on two loans, worth a total of

$53.7 million, to assist power company rehabilitation and oil institution building, said a Georgian Embassy press release. A $52.3 million credit would implement the Power Rehabilitation Project, which would help the Tblisi municipal power grid company Tblisresi to privatize, restructure, and improve operations.

A second $1.4 million credit, for the Oil Institution Building Project, would support the Georgian International Oil Corporation (GIOC) in three ways. It would help pay for a feasibility study for a major oil pipeline to export Azeri Caspian Sea oil in the long term, the training of GIOC staff, and consulting services for negotiations with the Azerbaijan International Operating Company (AIOC). Both loans will be considered by the IDA's board of directors in April.

Armenian Prime Minister in the Hospital

· Armenian Prime Minister Armen Sarkisyan is currently undergoing medical treatment in London, and will need at least another two weeks to recover before returning to Yerevan, reported Itar-Tass, citing the Armenian Health Minister. Last month during a working visit to London, SARKISYAN underwent minor surgery on his trachea. The Armenian parliament expressed concern today that it was not kept apprised of the premier's condition.

Kazakh Government Changes

· In line with the restructuring of the Kazakh government this week, President Nursultan NAZARBAYEV has given some ministers new responsibilities as heads of enlarged ministries. Economy Minister Umirzak SHUKEYEV became Minister of Economy and Trade with his department absorbing the ministries of economy, industry and commerce, and housing and construction, as well as the state committees on prices, anti-monopoly policy, and statistics, reported Interfax.

Energy and Coal Industry Minister Viktor KHRAPUNOV is in charge of the expanded Ministry of Energy and Natural Resources, which incorporates the former ministries of energy and the coal industry, oil and gas, and geology.

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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