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

Friday, April 18, 1997

Russian Federation

Politics

Yeltsin Promises NATO Accord in May

· Russian President Boris Yeltsin announced Thursday that an agreement involving NATO expansion will be signed between Russia and NATO in Paris on May 27. During a joint news conference with German Chancellor Helmut Kohl in Baden-Baden, YELTSIN said he will visit Paris to sign the document along with the leaders of other NATO states.

KOHL was more cautious about the NATO agreement, saying that "some 90 percent of the charter is completed," but that the remaining 10 percent was the most difficult aspect of negotiations. Nonetheless, he said there was a "good chance" that the remaining difference could be overcome before the May 27 deadline.

The US was slightly less optimistic on the Russia-NATO accord. White House spokesman Mike McCurry said that US President Bill CLINTON would likely attend a NATO signing ceremony in Paris, but noted: "It's not done, clearly not done. They've got a ways to go."

One of the remaining differences between Russia and NATO is the issue of NATO retaining discretion to improve the military infrastructure of new Eastern European members. Russia is seeking a legally-binding commitment that NATO will not station new troops or nuclear weapons on the territory of the new members. State Department spokesman Nicholas Burns said that he knows of no "dramatic progress" on this question and expressed doubt that "NATO will divert from its position" on it.

Meanwhile YELTSIN was taking heat in Moscow for "giving up everything he possibly could" to NATO.

Communist Party leader Gennady ZYUGANOV told Interfax today that the deal between Russia and NATO was a "historic mistake."

"Apparently, NATO made an ultimatum to the Russian president, and none of his friends—Bill [CLINTON], KOHL—took Russia's interests into account," ZYUGANOV is quoted as saying.

President Yeltsin left Stuttgart today for the southern resort city of Sochi, where he will spend a short vacation.

Primakov Hospitalized with Gallstones

· Russian Foreign Minister Yevgeny PRIMAKOV underwent surgery for gallstones today and will be out of commission for 10-15 days. PRIMAKOV missed a meeting with Portuguese Foreign Minister Jaime de GAMA earlier today, when he fell ill unexpectedly and was hospitalized.

The Minister's hospitalization comes during a key period of negotiations over a special relationship for Russia with the expanding NATO. Although the absence of PRIMAKOV, whose specialty is relations with the East, could prove helpful in reaching an accord with the Western alliance. First Deputy Foreign Minister Igor Ivanov will carry out the Minister's duties while he is incapacitated.

Moscow Banker Detained for Fraud

· Russian police have detained Arkady ANGELEVICH, board of governors' chairman at Moscow commer

Today's News Highlights

Russia

Chubais Calls for Gold Market

German Loan for Small Bus.

Mosenergo Backs Down

Apple Plans for Astrakhan

Bayer's Problems in Russia

South Caucasus & Central Asia

Canada Oil Co. in Azerbaijan

Uzbekistan Orders 3rd Airbus

Uzbek Gold/Copper Tender

Essex Loses Atyrau Refinery

Politics-Economics-Business

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Intercon's Daily

Ruble = 5,742/$1.00 (NY rate)

Ruble = 5,753/$1.00 (CB rate)

Ruble = 5,741|5,765/$1.00 (buy|sell rates)

German Loan for Small Business

· Germany's Dresdner Bank AG has agreed to grant Russia's Federal Foundation for Support of Small Businesses a framework credit of DM250 million (about $160 million) in support of small and medium-sized businesses in Russia, reported Itar-Tass today. The agreement enables the Foundation to begin to place orders in Germany for the delivery of machinery and equipment to small and medium-sized businesses in Russia.

Dresdner Bank will provide financing for the orders, while the Hermes Insurance and the Russian SBS-Agro Bank will act as the guarantors of the credits.

Business

Mosenergo Drops Plans against Shareholders

· Moscow utility company Mosenergo this week announced, and then abandoned under pressure, a plan to limit the rights of outside shareholders in what is viewed as a major victory for foreign investors in Russia, reported the Financial Times. Mosenergo was once considered one of the most investor-friendly companies in Russia and foreign investors currently own 35 percent of the company's shares.

The announcement earlier this month that Mosenergo planned to seriously limit the rights of foreign shareholders produced an outcry from foreign investors, international financial institutions, and reformers in the Russian government.

One investor sent an irate letter to newly-appointed First Deputy Prime Minister Boris NEMTSOV saying: "Failure to do so [stop Mosenergo's proposals] will send a message to all investors that any Russian company at any time, not matter how large and important, can suddenly decide to take away shareholder rights and dilute their ownership. This will have a significant long-term affect on the Russian capital markets," according to Thursday's FT.

The company proposed to limit shareholders' voting rights to one percent of share capital, no matter what the size of the stake, to restrict the nomination of directors to those candidates with 25 years' experience in the Russian power industry, and to increase the company's authorized share capital by 30 percent. During a special Mosenergo board of directors meeting on Thursday, however, the board unani

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cial bank Montazhspetsbank, on suspicion of fraud, reported the Associated Press (AP). The banker is suspected of organizing a fraud scheme involving forged documents that allegedly helped him misappropriate $7 million from the Yedinstvo bank.

A police search of ANGELEVICH's home and office produced $55,000 in cash, jewelry worth about $1 million, and seals of non-existent companies.

The Association of Russian Banks issued a statement protesting the arrest. Montazhspetsbank officials said they believe ANGELEVICH is innocent.

Economy

Chubais Calls for Gold Market

· Russian First Deputy Prime Minister Anatoly Chubais told reporters today that the government is working to create a "normal, free and regulated gold market" in Russia, reported Reuters . Chubais said that a special working group of representatives from the Finance Ministry, the Central Bank, and the regions will draft a plan for liberalizing the gold market within the next 10 days.

Gold industry officials have long called for the gold market to be liberalized in order to boost the volume and efficiency of production. Currently, the government is the sole buyer, exporter, and producer of gold in the country. Proposals for changes to the system include merging small gold producers and allowing commercial banks to purchase and trade gold.

When you need to know it as it happens

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mously decided not even to discuss or vote on the company's proposals.

Boris BREVNOV, who was recently appointed vice president of electric giant Unified Energy Systems (UES) by Russia's new reformist government, played a major role in pressuring Mosenergo, heartily praising the company for reversing its decision. "I think this is a good sign that Russian companies, even big ones, have begun to listen to the voice of investors. This is also a sign that we [the new government team] are not just making promises but are able to act on them," he is quoted by today's FT as saying.

Credit for Mosenergo's reversal also goes to the European Bank for Reconstruction and Development (EBRD), which threatened to cancel a planned $100 million loan, if the company went ahead with its plan to restrict outside shareholders' rights, said FT.

Investors were relieved by the news, expecting it to help quell plans by other Russian regional utilities to limit shareholders' rights. Moreover, the whole episode inspires optimism that the new Russian government team may prove effective in restructuring the country's powerful energy sector.

Apple Plans Service Center in Astrakhan

· US Apple Computer Inc. is considering plans to open a service center for its Macintosh computers at a pager provider in the southern city of Astrakhan, reported Interfax. Aleksandr LYTSEV, general director of Astrakhan-Page, said his company was already preparing space for the Macintosh dealership and service center. The company will begin selling Apple Macintosh computers through its own retail network within a month or two.

Astrakhan-Page is also negotiating with local telecommunications provider Elektrosvyaz Astrakhan to offer its subscribers access to the internet. The project will be carried out on an Apple platform and speed data transfers up from 9.6 kilobytes to 400 kilobytes per second. Time for transferring traffic via the Astrakhan-Page web server will be provided by Demos, one of Russia's biggest internet providers.

Apple is currently represented on the Russian market by two Moscow companies, DPI and Mac-Center. Apple Computer CIS, a Belgian-registered company, pulled out Moscow in the middle of last

CENTRAL ASIA/Caucasus SHORT TAKES

n The head of Interpol in Kazakhstan Bekzhan KARIKBOLOV said that up to 100 kilograms of raw opium pass through the country every month on the way to markets in Europe. KARIKBOLOV also said that, besides being a transit route for opium from Afghanistan and Pakistan, Kazakhstan produces a large amount of marijuana and hashish and there has been a noticeable increase in the amount of ephedrine in circulation.

n Uzbek President Islam Karimov issued a decree introducing long-term credit for individual housing. The credit will be provided against housing bonds to be issued by the government soon. The credit is to be spread over ten years with an annual interest rate of 20 percent. The state also plans to repay 50 percent of construction costs.

n The Uzbek central bank introduced a new accounting system on March 17. The system, which meets international standards, was worked out jointly between the central bank and the Arthur Anderson internatitonal consulting firm and was apporved by the World Bank and the IMF.

n A recent Turkmen presidential decree instructs the state agency for foreign investments to create a unified system to register enterprises with foreign capital. It will also work out a procedure to repatriate revenues of enterprises with foreign capital and control such operations. Turkmenistan has 272 enterprises with foreign capital and 260 firms, whose capital is totally foreign.

n Japan has approved a three billion yen ($24.3 million) loan facility to help finance the renovation of a trunk road between Bishkek and Osh.

n Consumer prices in Kyrgyzstan rose by 2.2 percent in February, after a 3.4 percent increase in January. Gross domestic product (GDP) grew by 0.6 percent in the first two months of the year, compared with the same period in 1996.

n The Japanese Trade Ministry will provide trade insurance for a $100 million export deal to refurbish a state-run chemical plant in Azerbaijan. The facility will cover the export of power-generating systems supplied by a consortium comprising Nichimen Corp. and Chiyoda Corp.

When you need to know it as it happens

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year. According to available figures, Apple sold about 8,000 computers in 1995 and failed to meet its targets of doubling sales in 1996. It has captured about two percent of the Russian market.

Bayer's Problems in Russia

· The Russian subsidiary of Germany's Bayer AG is expressing frustration over the inadequacies of the Russian tax system and arbitrariness of the country's officials, which are the main obstacles to large investments in the Russian economy, reported Interfax-AiF (No.15). The company has made great strides in Russia during the last few years, but its latest new venture has apparently been hit by corruption.

Company director Karl-Heinz Vibush noted that in 1996 Bayer's sales in Russia grew 50 percent and reached $150 million. Last fall, Bayer opened a facility in Vladimir Oblast to manufacture its Baitril preparation in accordance with the GMP international standard for the first time in Russia. The company extended an interest-free credit and invested over $3 million into the project. However, the enterprise was soon closed by Russia's sanitation service. Attorneys for Bayer believe the action is an attempt by the authorities to extort money from the company.

Uzbekistan Orders Third Airbus

· Europe's Airbus Industrie said today that Uzbekistan Airways had ordered a third A310-300 wide-bodied jet, reported Dow Jones. The airline has also decided to purchase the two A310 twin-engined planes that it has been operating under a lease agreement over the last four years, said Airbus. The latter transaction is part of an agreement between Uzbekistan and Germany's Daimler-Benz AG.

Uzbek Gold/Copper Tender Winner in May

· Uzbekistan will announce the results of a tender for seven gold fields with estimated reserves of 1,720 tons of gold and four million tons of copper at the beginning of May, reported Reuters. The tender's deadline had been extended to allow more companies to participate, said the state geology committee.

The largest gold field in the tender, Dzhetymtauskaya, has reserves of about 400 tons. The richest copper field is Karamurunskaya, with reserves of 2.5 million tons of copper and 250 tons of gold.

A total of 17 companies competed in the tender including Britain's RTZ Corp. Plc, Canada's Nelson Gold, and Australia's Broken Hill.

Essex Loses Kazakh Refinery Bid

· Less than two weeks after winning a tender to purchase a 53.1 percent stake in Kazakhstan's Atyrau oil refinery, the Essex Refinery Corp. of the British Virgin Islands has lost the right to the stake, reported the Economist Intelligence Unit (EIU). The Kazakh government said this week that Essex failed to meet its promises for investment in the refinery.

The outcome was not surprising to observers who wondered how the obscure Essex would obtain the $1 billion needed to fulfill the obligations of the tender. The episode also underlined the dangers of Kazakhstan's rapid drive to privatize its major enterprises. In the haste, neither the Kazakh government nor potential investors are taking sufficient time to examine each other.

South Caucasus & Central Asia

Canada Firm Seeks Concession in Azerbaijan

· Canada's A&B Geoscience Corp. announced on Thrusday that its wholly-owned subsidary, Commonwealth Oil & Gas Company Ltd., has signed an agreement with Azeri state oil company SOCAR on the main commercial principles and conditions of the exploration, development, and production-sharing agreement for Commonwealth's oil and gas concession in Southwest Gobustan, Azerbaijan, said a company press release. Commonwealth management will continue to meet with SOCAR representatives throughout the month of May in an effort to conclude the production-sharing agreement in May or June 1997, it said.

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