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

Friday, April 11, 1997

men for alleged abuse of office, but apparently no formal corruption charges will be made against them.

Nemtsov's Popularity Growing

· Russian First Deputy Prime Minister Boris NEMTSOV is currently the most popular politician in the country, according to a recent poll by the All-Russian Center for Public Opinion Studies, reported Interfax. NEMTSOV received the support of 18.8 percent of respondents in a poll of 2,406 people, questioned between March 14 and April 2.

NEMTSOV ranked just above former Security Council chief Aleksandr LEBED, who was favored by 18.6 percent of respondents. Communist Party leader Gennady ZYUGANOV ranked third with 15 percent of support, followed by Yabloko party leader Grigory YAVLINSKY (14 percent) and Moscow Mayor Yuri LUZHKOV (10 percent). Prime Minister Viktor CHERNOMYRDIN was favored by only nine percent of respondents and President Boris YELTSIN was tops with only seven percent.

The poll indicated a rise in the popularity of NEMTSOV and LUZHKOV and a decline for LEBED, ZYUGANOV, and YAVLINSKY. The poll also showed that nearly one-third of respondents did not trust any Russian politicians, up from 18 percent last year.

More Government Personnel Changes

· Russian First Deputy Prime Minister Anatoly CHUBAIS has been named to head the government commission dealing with the Group of Seven

Russian Federation

Politics

Iranian Parliamentary Speaker in Russia

· Russian President Boris Yeltsin met with Iranian parliamentary chairman Ali Akbar Nateq-Nouri today and hailed the future of bilateral relations. "We have good, positive relations with Iran, and they will grow," Yeltsin told NATEQ-NOURI, according to United Press International (UPI).

Nateq-Nouri and Russian Federation Council chairman Yegor Stroyev today signed a protocol on cooperation between the parliaments of Russia and Iran. "We have agreed that cooperation will be started with a joint gathering of deputies of the Caspian Sea countries and continue on a regional level," Stroyev told reporters following the meeting, according to Itar-Tass.

Defense Minister to Visit China

· Russian Defense Minister Igor Rodionov will pay a six-day official visit to China, beginning on Sunday to meet his Chinese counterpart Chi Haotian and other leaders, the ministry press service said in a statement today.

Four Top Generals Dismissed

· Russian President Boris YELTSIN has dismissed four senior military commanders for abuse of office on the recommendation of the Defense Ministry, reported Reuters today. Land forces commander Army General Vladimir SemYenov, his deputy Colonel-General Anton Terentyev, the chief of navy's general staff Admiral Igor Khmelnov, and Northern Fleet deputy commander Vice-Admiral Vyacheslav Kharnikov were dismissed.

Intercon reported earlier in the week that the Defense Ministry had asked YELTSIN to dismiss the

Today's News Highlights

Russia

Russia Prepares for EBRD Mtg.

Battle over Rosgosstrakh Shares

Boeing to Buy Titanium

Norilsk Shares to Workers

European Republics

Lukashenko Promises Prosperity

Copper Tender in Ukraine

South Caucasus & Central Asia

Euro-Asian Corridor Accord

Santa Fe Mining in Kyrgyzstan

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Friday

April 11, 1997

Intercon's Daily

Ruble = 5,729.5/$1.00 (NY rate)

Ruble = 5,746/$1.00 (CB rate)

Ruble = 5,737|5,755/$1.00 (buy|sell rates)

processes taking place in Eastern Europe and think out a strategy for investments in countries in the region," EBRD Secretary-General Maria Costa is quoted by Itar-Tass as saying.

The Russian presentation is a main focus of the EBRD annual meeting, because Russia accounts for about a quarter of the EBRD's business. The recent government personnel changes, which have brought several young economic reformers into the Russian cabinet, are heightening the interest in the country's presentation.

At the end of 1996, the EBRD had 450 projects in place, with 10 billion ECU (about $11.3 billion) of loans and investment approved, including $3 billion for Russia, according to Reuters. That figure has now risen to $3.5 billion, of which $2.5 billion has been signed and $1 billion disbursed. By value, 17 percent of projects are equity and the rest are debt.

Battle Over Insurance Company Sell-off

· The Russian State Duma on Wednesday voted 250-32, with one abstention, to recommend to President Boris YELTSIN to suspend the privatization of huge state insurance company Rosgosstrakh, reported Interfax. The Duma wants the government to cancel the State Property Committee's plan, decided in November 1996, to privatize Rosgosstrakh. The Duma wants a special privatization plan to be drawn up and presented to the parliament by July 1.

The deputies believe that the privatization program will mainly benefit nine people, the company's management, while its 80,000 employees are left with almost nothing. The plan calls for 20 percent of the company's shares to be offered to employees, with another 30 percent to go to the nine managers, and 50 percent to be sold at cash auction.

Deputy Prime Minister Alfred KOKH said on Thursday that Rossgosstrakh will be privatized according to the original plan, reported Reuters.

Business

Boeing to Buy Russian Titanium

· US Boeing has concluded an agreement with the Russia's Verkhnaya Salda metallurgical production amalgamation (VSMPO) to purchase 2,000 tons

Nov Dec Jan Feb Mar Apr

(G-7) industrialized nations, as well as to become Russia's envoy with the World Bank and the Multilateral Investment Guarantee Agency, reported Interfax. All positions were previously held by Vladimir POTANIN who is no longer in the government.

In addition, Russian First Deputy Fuel and Energy Minister Viktor Ott has been assigned to be acting head of the Ministry by Prime Minister Viktor Chernomyrdin, reported Russian Public TElevision (RTV). Also, the first deputy chairman of Russian Federal Property Fund Igor Lipkin has been named to take over the agency.

Economy

Russia Prepares for EBRD Annual Meeting

· A Russian delegation, led by Central Bank head Sergei Dubinin, arrived in London Thursday night to attend the annual meeting of the Board of Directors of the European Bank for Reconstruction and Development (EBRD). The delegation also includes First Deputy Finance Ministers Andrei Vavilov and Aleksei Kudrin.

The meeting technically begins on Monday, but over the weekend the Russian delegation will attend a financial conference, organized by Euromoney magazine, during which the former-Communist EBRD members will have a chance to present their economic reform plans. This will enable Western financial institutions to get an integrated picture of the

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Friday

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of Russia-produced titanium, reported Itar-Tass, citing a source at Boeing's Seattle headquarters. Boeing's demand for titanium has risen sharply as a result of an increase in its orders for passenger airliners, said the report. Negotiations on a titanium deal have been ongoing for the past three years. The value of the new contract was not disclosed.

VSMPO, located in Sverdlovsk Oblast, is a major global producer of titanium with a capacity of 65,000 tons of titanium and titanium alloys a year. However, in recent years the plant has only been working at 25 percent of its annual processing capacity.

Intercon reported in January that Russian titanium parts, such as window frames, pilot cabins, engine brackets, and chassis components were installed in 25 new Boeing B777s, accounting for 15 percent of all titanium parts used on the aircraft. At the time, Boeing supplies director Bob ECKER said the range of products made from Russian titanium would increase as orders for B777s grow.

Norilsk Transfers Shares to Workers

· Russian metals giant Norilsk Nikel announced this week that it had transferred 12.5 million, or 10 percent, of its shares to its employees, causing the share price to drop by 8.2 percent to $5.05, reported today's Wall Street Journal. Norilsk sold 11 million shares for about $1.00 each and gave away 1.5 million shares under the terms of the company's privatization. Investors apparently fear that the company's workers, who have not been paid for months, will flood the market with their stock and cause the share price to plunge further.

said it will consider resuming operations, if the government returns the money.

Lukashenko Promises Prosperity in Belarus

· In his annual address to parliament today, Belarus President Aleksandr LUKASHENKO said recent constitutional reforms have brought political stability, civil peace, and national accord to Belarus, reported RIA Novosti. He claimed that the economy has improved markedly in the first quarter of his year and promised higher living standards by year-end.

Meanwhile, some 10,000 workers protested in Minsk against the perceived government indifference to demands for higher wages, new jobs and the stable functioning of factories, reported RFE/RL. They also called for police to stop beating people in the streets.

Copper Tender in Ukraine

· Ukraine's State Geology Committee announced today it will hold an international tender on June 21 for exploration and development rights to a copper deposit in western Ukraine, reported Reuters. The winners will receive five-year exploration and 20-year mining rights on the 32-square hectare deposit, located in the Volyn region, 500 km west of Kiev. Ukraine has targeted copper output of 300,000 tons a year by 2000, after output of 50,000 tons in 1994.

Ukraine Parl. Passes Anti-Investment Law

· The Ukrainian parliament passed a law on Wednesday revoking tax breaks that were aimed at attracting foreign investment to the country's ailing economy, reported the Associated Press (AP). The tax breaks to be cancelled include a two-year exemption for ventures with over $50,000 in foreign capital and a regulation freeing foreign investors from customs duties on equipment they bring in to Ukraine. The law must be signed by President KUCHMA.

Ake DAVIDSSON, president of Ukrainian operations for the Swiss-Swedish Asea Brown Boveri Ltd., told AP that the removal of the two-year exemption would be damaging because few investors are able to make a profit in the short term. "A heavy tax burden during the implementation years will delay foreign investment, or foreign investors will find other alternative markets for investments. Ukraine cannot afford this," he is quoted as saying. Ukraine has attracted only $1.4 billion in direct foreign investment since it became independent in late 1991.

European Republics

US Charity Suspends Work in Belarus

· The US Embassy in Minsk said that US-based charity CitiHope is suspending its humanitarian aid activities in Belarus because the authorities seized nearly $350,000 from the bank account of its local partner, Nadezhda Express, and is refusing to return it, reported RFE/RL Newsline, citing Belapan. The Embassy called the seizure a clear violation of a US-Belarussian assistance agreement.

CitiHope said that it has delivered millions of dollars worth of food and medicines to needy Belarussians and it regrets the government's action. The charity

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South Caucasus & Central Asia

Aliyev OKs Euro-Asian Corridor Deal

· Azeri President Geidar Aliyev on Thursday approved an agreement on cooperation in setting up and utilizing a Euro-Asian transport corridor via the Black and the Caspian Seas, reported Itar-Tass. The original document on the corridor was signed by the governments of Azerbaijan, Georgia, and Ukraine late last year.

The agreement will be carried out by the three countries with the support of the European Union (EU) within the framework of the Technical Assistance to the Commonwealth of Independent States (TACIS) program. The transport corridor will connect European and Central Asian countries via the Black and the Caspian Sea by ferries and a railroad.

According to estimates by foreign experts, cited by Itar-Tass, after the reconstruction of sea ports and railway points along the transport corridor have been completed, it will be possible to annually transship up to 20 million tons of cargoes in both directions, 20 times more than capacity than is currently available.

IDA Loan to Reduce Poverty in Tajikistan

· The World Bank on Thursday approved a $12 million credit to Tajikistan to help finance a Pilot Poverty Alleviation Project, said a Bank press release. The project, financed by funds from the International Development Association (IDA), will back the government's efforts to restore economic and social stability by helping to improve the quality of life for the poorest segments of Tajikistan's population. The project is aimed at reviving local economic activity and strengthening community-based social infrastructure and services.

The project has two main components. The first, expanding existing poverty alleviation programs of international non-governmental organizations (NGOs), will help to improve the living standards of the most vulnerable through a Shelter and Housing

Rehabilitation Program, a Micro-Credit Program, a Program of Support to Female-headed Households, and an Agricultural Reform Program. The second component is the creation of a Tajikistan Social Investment Fund which will help channel new funds to many poor communities.

Santa Fe Gold Signs Deal w/Kyrgyz

· US Santa Fe Pacific Gold announced on Thursday that it has signed a foreign investment contract with Kyrgyzstan that sets forth provisions for the exploration and potential development of its joint venture properties in the country, said a company press release. "The contract with the Kyrgyz Republic is a strategic milestone in Santa Fe's aggressive, two-year program to develop the gold potential of the region. Upon completion of the merger with Newmont Mining, the combined company will have the most significant gold production and exploration effort in Central Asia," said Santa Fe president, chairman, and CEO Patrick JAMES.

The contract, signed on April 10 in Bishkek, defines the rights and obligations for Santa Fe Pacific Gold's joint ventures in Kyrgyzstan. The provisions establish a favorable and stable tax regime consistent with the current tax laws of the country, including a tax holiday that is available to foreign investors in the Naryn Free Economic Zone (NFEZ).

Other provisions include: a right to sell gold overseas, free of any duties, taxes, or requirement to convert hard currency earnings into local currency—the Kyrgyz central bank has a right of first refusal to purchase gold with hard currency at prevailing market prices; a right to import capital goods needed in its operations, free of duties and taxes; and international arbitration procedures for dispute resolution.

Santa Fe has been exploring in Kyrgyzstan for two years and employs 20 people in two joint ventures. The Sultan Sary venture, with state mining company Kyrgyzaltyn, is located in the NFEZ, and the Sary Jaz, a 50/50 venture with the Issy Kul Expedition.

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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