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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, April 10, 1997

Russian Federation


Yeltsin Promises to Combat Corruption

· In a radio address to the nation today, Russian President Boris Yeltsin admitted that the prestige of the authorities in Russia is low and corruption is one of the main reasons. He promised to "fight to the end" to eradicate it. He announced a new initiative to make all government purchases and services subject to competitive bidding. He also said that he had ordered a legal code of ethics to be drawn up and applied to government officials, removed some tax and customs privileges, ordered the government to begin selling off the foreign-made cars in its fleet, and decreed that all public officials and their families declare their income and property.

"I know that you still have doubts about our eventual victory over corruption," said YELTSIN. "However, I have resolve and political will, and I enjoy your support in that struggle. I shall bring this difficult struggle to a victorious end. People will be afraid to misappropriate public funds and take bribes."

YELTSIN has launched several anti-corruption campaigns since Russia became independent in late 1991, but with minimal concrete results and corruption has continued to flourish.

Russia-Belarus Union Accord Published

· The charter on integration, signed last week by Russian President Boris YELTSIN and his Belarussian counterpart Aleksandr LUKASHENKO, has been published for the first time in both countries. The 39 articles of the charter will, with perhaps some revision, make up a union treaty that is expected to be signed by the two presidents on May 20. The articles call for the eventual creation of a single economic zone and a single currency. It also talks

about coordinating foreign policy in areas of mutual interest and urges strengthening ties in political, military, and social spheres.

According to Voice of America (VOA), Russian government officials say the treaty published on Wednesday is only a draft and is open to wide-ranging, nationwide discussion. They say Russians should comment on the proposals and send their views to a special committee which will analyze all remarks and amendments.

NATO- Russia Accord Could Be Signed in May

· Russia and NATO could sign a treaty on a special relationship in Paris on May 27, said Russian Foreign Minister Yevgeny Primakov, following a meeting with French President Jacques Chirac in Paris on Wednesday. He said that Russian President Boris YELTSIN will come to France to sign the deal if it is finalized by the deadline, reported Russian Public Television (ORT).

NATO Secretary-General Javier Solana is scheduled to visit Moscow on April 15 for another round of NATO-Russia talks.

FSB Moscow Branch Head Named

· Russian President Boris YeLtsin has appointed lieutenant-general Aleksandr Tsarenko to the post of chief of the Federal Security Service (FSB) Department for Moscow and Moscow Oblast and concurrently as a deputy director of the FSB, reported

Today's News Highlights


Corruption Chart

Six Shot Dead in Moscow

Miners Block Trans-Siberian

Russian-Turkish Trade Up

Cigarette Demand Rising

Subway Wins Suit Vs.Russia

Russia Short Takes

Peterstar Plans Big Investment

McDermott to Sell Sakhalin

Magnesium JV Operating




April 10, 1997

Intercon's Daily

Russian-Turkish Trade Up Substantially

· The trade turnover between Russia and Turkey totaled $15 billion, reported Wednesday's RFE/RL Newsline, citing Interfax. The figure, given by a Turkish diplomat in Moscow, is $11 billion more than the official figure. The diplomat said that shuttle trade by Russians, construction, and tourism explain the discrepancy.

He also noted that, even based on the official $4 billion figure, Russia is Turkey's third most important trade partner, after Germany and Italy. He predicted that Turkish investment in Russia would expand significantly once the political and economic situation there stabilized.

Russian Cigarette Demand Rising

· During the last decade, the number of cigarette smokers in Russia has increased by 13 percent, causing the demand for cigarettes to rise steadily, reported AsiaInfo Services. Currently, Russia consumes 250 billion cigarettes annually, while it can only produce 150 billion cigarettes. As a result, Russia needs to import large quantity of cigarettes.


Subway Wins Suit Against Russia Co.

· The International Arbitration Court in Stockholm has awarded US Subway more than $1.2 million in a dispute with a St. Petersburg company over a failed joint venture to establish a Subway sandwich shop on Nevsky Prospekt, reported this week's St. Petersburg Times. The restaurant at 20 Nevsky Prospekt, which opened in December 1994, was Subway's first in Russia. Eight months later it was shut down as a result of a dispute between the US company and its Russian partner which had both sides accusing the other of dishonesty and intimidation. In August 1995, the restaurant was re-opened by the Russian partner, Vadim BORDUG, and re-named Minutka.

According to the US side, BORDUG took over the restaurant in June, while Steve BROWN, the American manager of the Subway restaurant was away on vacation. Subway officials went to St. Petersburg to look into the situation and found that BORDUG has stolen $28,000, James GANSINGER, executive vice-president of East-West Invest, a company created by Subway to handle its Russian business, told the

Itar-Tass. Tsarenko joined the KGB in 1974. He has been serving as acting FSB director for Moscow since February, when the previous director, Anatoly Trofimov, was dismissed.

Six Shot Dead in Moscow

· Six men were found shot to death at a Russian government building in Moscow on Wednesday in what police believe was the settling of a score by organized crime gangs, reported Reuters. The six were all ethnic Azeri, aged 25-30, and none of them worked at the scene of the crime, a communications center for the merchant fleet. Police said that they had a lead on the killers and were confident of making arrests, but it should be noted that few gang-style killings are solved in Moscow.


Ruble = 5,732.5/$1.00 (NY rate)

Ruble = 5,744/$1.00 (CB rate)

Ruble = 5,737|5,751/$1.00 (buy|sell rates)

Protesting Miners Block Trans-Siberian

· Some 1,000 Russian miners halted movement along the Trans-Siberian Railway for 16 hours on Wednesday, demanding the immediate payment of back wages, reported RIA Novosti. Miners in Anzhro-Sudzhensk in central Siberia have not been paid for the last eight months. They blocked 30 passenger trains, including the Irkutsk-Moscow train and the Beijing-Moscow train, and the same amount of freight trains, costing the railway company an estimated 300 million rubles.

When you need to know it as it happens




April 10, 1997

Intercon's Daily

Times. Subway confronted BORDUG. The next day, BROWN was threatened and "roughed up" at the Subway store. BROWN testified in court that BORDUG told him to return to America or he and his wife would be killed.

BORDUG claimed, however, that he was the one who had been cheated and threatened. In an interview with the Times, BORDUG said that problems arose when he objected to a franchising agreement that granted East-West Invest eight percent of gross profits. In June 1995, BORDUG went to a meeting at a hotel to discuss the partnership and was met by about seven "bandits" who asked him why he was bothering their friends. "After that, things changed sharply," he said.

Later, BROWN tried to come back to the restaurant accompanied by two other "bandits," said BORDUG. "Of course, he could come in, but not the bandits," he said. "We make it a policy not to be associated with such people."

BORDUG is contending that the Stockholm court's arbitrators were chosen by the Americans alone and did not properly review materials he submitted, saying he intends to ignore the ruling. "Nothing in the business is going to change, because we don't believe the court's decision can be enforced in the Russian Federation."

Subway officials say that St. Petersburg Governor Vladimir YAKOVLEV has assured them the he would help ensure that the ruling is respected, but they don't seem very confident of this. "We've been waiting to see how this little drama plays out [before deciding whether to continue in Russia]," said East-West's GASINGER. "Of course, the question is whether the city [can] do anything about [the Stockholm ruling]."

Peterstar Plans Big Investment in Petersburg

· Telecommunications joint venture PeterStar this year plans to invest about $13 million in its own digital fiber optic network in St. Petersburg and another $14.5 million in a joint project with the Petersburg Telephone Network, reported Interfax. PeterStar general director Vladimir AKULICH said that investment this year would be double that of 1996.


n Representatives of Chile and of the Russian city of St. Petersburg have signed a trade agreement that may increase the flow of Chilean exports through the port of St. Petersburg, according to Chilean Foreign Minister Jose Insulza. The Minister said that Chile is also looking to be Russia's doorway to Latin America by handling Russian exports to Latin America and that the two countries will soon sign an agreement on the mutual protection of investments.

n Belgian national carrier Sabena has announced that it will reopen its direct route to Moscow, beginning this month, in response to customer demand.

n Nizhny Novgorod's Gorky auto plant (GAZ) has increased its output in the first quarter of this year by 5.5 percent, compared with the same period of time in 1996. Production of trucks increased by 4.9 percent, while production of passenger cars rose by 6.1 percent.

n The UK's Middlesex Holdings, which specializes in commodities in the former Soviet Union, is paying $6.67 million to increase its stake in Russian steelworks Oskol Electrometallurgical Kombinat from three percent to 7.91 percent.

n The Chicago Mercantile Exchange is developing futures on the Russian ruble and expects them to be ready to launch within a year.

n According to a recent survey by the All-Russian Public Opinion Research Center, about 20 percent of Russians carry weapons on a daily basis for "self-defense." The most popular weapons are gas pistols, replicas of real weapons which are capable of firing a high-velocity stream of gas that can knock a person unconscious at five meters.

n Private ownership of military-style firearms is illegal in Russia, but on the rise. According to a recent survey in Komsomolskaya Pravda, the black market is flooded with assault rifles, submachine guns, pistols, grenades, and explosives, most of which are the former property of the armed forces. The Interior Ministry reportedly confiscates over 1,000 illegal weapons each month.

When you need to know it as it happens




April 10, 1997

Intercon's Daily

AKULICH was speaking at the opening of St. Petersburg's first integrated services digital network (ISDN) system, which, using equipment from US Lucent Technologies, cost $7 million to put in place. The new system will provide video conferencing, high-speed data transfer, and access to the Internet. Internet access will cost three cents a minute.

PeterStar is the second biggest privately-owned overlay network in Russia, operating 700 km of its own cable in St. Petersburg and servicing 53,000 subscribers. Investment in digital infrastructure in St. Petersburg has amounted to about $50 million over four and a half years. PeterStar was founded in October 1992 by the Petersburg Telephone Network, Luxembourg's Complus, and Canada's Petersburg Long Distance Inc. Petersburg Telephone later transferred its shareholding over to a regional holding company, Transinvest.

AKULICH said the planned $14.5 million investment in Petersburg Telephone Network was part of a overall project that will cost $100 million to carry out by the end of the century.

McDermott to Sell Sakhalin Interest

· New Orleans-based McDermott International, Inc. announced today that it had signed agreements to sell its 20 percent interest in the Sakhalin Energy Investment Company Ltd. to the other members of the consortium. Under the agreements, McDermott will receive $110 million and will be completely divested of its holdings in Sakhalin Energy.

Sakhalin Energy, which is registered in Bermuda, holds licenses to develop the Piltun-Astokhskoye and Lunskoye oilfields offshore Sakhalin Island in the Russian Far East. The members of the consortium and their new shareholdings are: Marathon Sakhalin Ltd., which now holds a 37.5 percent stake; Mitsui Sakhalin Development Co., Ltd. with 25 percent; Shell Sakhalin Holdings BV with 25 percent; and Diamond Gas Sakhalin BV, a subsidiary of Mitsubishi Corp., with 12.5 percent.

Russian-German Magnesium JV Running

· Russia's Solikamsk Magnesium Works said on Wednesday that its desulphurization granules joint venture with Germany's ALMAMET GmbH started up last month with current output at full capacity of 2,000 tons per year, reported Reuters, citing a company statement released through the US-based International Magnesium Association. The 50/50 joint venture, called Solikamsk Zavod Desulfuratorov (SZD), is based at Solikamsk's magnesium plant in Perm Oblast. Swiss-based Minmet Financing Company, which holds a stake in ALMAMET, owns 15 percent of the shares of the Solikamsk Magnesium Works.

The venture is working to expand production to 6,000-8,000 tons of granules a year by the first half of next year, if key Russian steel producers install desulphurization equipment, said SZD. The Magnitogorsk and Nizhny Tagil steelmills are expected to install the desulphurization injection technology needed to use magnesium granules for purifying steel during melting. SZD said desulphurization will produce better quality steel for the oil and gas industries which have problems with faulty steel pipes, and are forced to import pipe.

Upcoming Events

Ukrainian Agro-industrial Sector Conference

April 11-12, 1997

Yale University, New Haven, Conn.

Conference will examine the current

performance and explore the future prospects of

Ukraine's agro-industrial sector.

Sponsored by: Council on Russian and East

European Studies and the Yale Center for

International and Area Studies,

with support from the

Chopivsky Family Foundation, AGCO Corp., and Citizens Network for Foreign Affairs.

Info: Edith Kufta or Marina Yamburenko,

Council on Russian & EE Studies, 203-432-3423

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.

When you need to know it as it happens