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 25, 1997

Forces, General Igor Sergeyev, will tour several US military bases next week under a program aimed at building trust between the two countries, the Pentagon announced on Thursday. The Russian general will meet with members of the US Strategic Command at an air force base in Nebraska. He will also visit bases in California and North Dakota, before returning to Russia on May 6.

Chechen Rebel Turns to Terrorism

· Security problems in the northern Caucasus region of Russia escalated this week as Chechen rebel commander Salman RADUYEV began to make good on a threat to conduct a reign of terror in Russia. In a statement to news agencies today, RADUYEV claimed responsibility for a bomb attack at a railway terminal in the southern Russian city of Armavir on Wednesday, as well as for planting explosive devices recently in Nalchik and North Ossetia.

At least two people were killed in the Armavir attack. The explosion in Nalchik only blew up a statue and the bomb at a railway station in North Ossetia was discovered and defused.

"The command of the army of General Dzhokhar Dudayev is announcing that it is starting to inflict target strikes all over Russia, especially on railway stations as military objects," said the statement, according to Itar-Tass. "These strikes are inflicted in retaliation for the terrorist attempt on the life of president Dzhokhar DUDAYEV and will continue until the

Russian Federation

Politics

Duma Forgoes Chem. Treaty, Pleading Poverty

· The Russian State Duma today chose not to follow the lead of the US Congress, pleading poverty and failing to ratify the Chemical Weapons Convention. Instead, the parliament unanimously passed a resolution, to be sent to the signatories of the convention, in which it promises to ratify the convention in the fall and explains the delay by Russia's drastic economic situation. Deputies said it was not permissible for "the disarmament race to ruin the budget of our country as it was at Soviet times because of the armament race," reported Itar-Tass.

The Duma asked the signatories not to exclude Russia from the convention and proposed an extension of the deadline for disposal of chemical weapons. The Duma "positively sees the need for the complete disposal of chemical weapons," the resolution is quoted by Itar-Tass as saying. However, Russia's difficult economic situation suggests little possibility for a substantial increase in the funding of the disposal program. The Duma called on convention signatories to consider Russia's circumstances as a force majeure and allow Russia "due part" in decision-making in the pre-ratification period.

New Man in Charge of Mafia at Interior

· Russian President Boris Yeltsin has signed a decree appointing Vladimir Vasilyev as First Deputy Interior Minister and the head of the Ministry's main directorate for organized crime, the presidential press service said today. VASILYEV has been serving as deputy chief of this directorate. He replaces Valery PETROV, who resigned earlier this year.

Russian Missile Forces Head to US

· The Commander of Russia's Strategic Missile

Today's News Highlights

Russia

IMF Expects New Loan Soon

DoD Increased CTR Funds

Svyazinvest, UES Tenders

LUKARCO in Tengiz Project

Rus, US Cos. in CPC Deal

European Republics

New Ukr. Anti-Corruption Body

GM & Daewoo in Ukraine

Belarus to Restrict Telephones

Metromedia Expands in Latvia

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April 25, 1997

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Ruble = 5,745.5/$1.00 (NY rate)

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full recognition of the political independence of the Chechen state of Ichkeria."

In addition, a bomb was discovered and defused today at an apartment building that housed naval officers and their families in the city of Kaspiisk, located in the Republic of Dagestan. It is unclear whether RADUYEV is responsible for this terrorist act as well, but it seems probable.

Economy

IMF Expects Accord with Moscow Soon

· International Monetary Fund (IMF) Managing Director Michel Camdessus said Thursday that Russia will likely receive final approval on a three-year, $3.3 billion credit in May, reported Futures World News (FWN). "There is a mission in Moscow now to finalize the arrangement of our agreements," Camdessus told a press conference ahead of the spring meetings of the IMF Board of Governors.

Holding up the agreements has been discussion of measures Russia must take to strengthen tax collection, and in turn its fiscal position. "I am certain the Russian authorities know we understand the difficulties of operating under a revenue crisis," said Camdessus. "But to continue this crisis risks anarchy and dictatorship in that country."

In Moscow today, Russian Central Bank chairman Sergei Dubinin told reporters that the Russian government, the Central Bank, and the IMF have fully coordinated the country's monetary policy for

1997 and will sign an appropriate agreement soon, reported Prime-Tass.

DUBININ also said that, beginning this year, IMF missions will be monitoring the Russian economy on a quarterly basis, rather than a monthly basis as in the past year. Thus, the next delegation of the International Monetary Fund is to begin work in Moscow in July, he said.

Central Bank to Hold on to Gold

· The Russian Central Bank will not sell gold from its reserves on the world market, Bank chairman Sergei Dubinin told a news conference on Friday. The Bank's gold stock currently stands at 397 tons, Bank deputy chairman Sergei Aleksashenko told Prime-Tass. The Central Bank's liquid hard currency reserves currently amount to $12.8 billion, and the gold and currency stock totals $16.7 billion, said Aleksashenko. Earlier this year, the Central Bank's gold reserves amounted to 377 tons, and the gold and currency stocks totaled $15 billion.

US DoD Increases CTR Funds

· The US Department of Defense announced this week that it has signed agreements with Russian officials to apply an additional $214.3 million to the Cooperative Threat Reduction (CTR) program, said a Pentagon statement. The additional funds are being provided through amendments to the Nuclear Weapons Storage Security Agreement; the Destruction of Chemical Weapons Agreement; the Elimination of Strategic Offensive Arms Agreement; and an agreement that provides assistance in the construction of a storage facility for fissile material derived from dismantled nuclear weapons.

Through the CTR program, also known as NUNN-LUGAR, the US has provided assistance for Russian disarmament in the form of equipment, services, and technical advice.

Svyazinvest, UES Tenders Planned

· Russian State Property Committee chairman Alfred KOKH announced on Thursday that the government will sell a 25 percent stake in telecommunications holding company Svyazinvest at a cash auction in mid-May, reported today's Wall Street Journal. He said that there would be no restrictions on which company's could bid for the stake, which will probably have a starting price of $1.1 billion.

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Friday

April 25, 1997

Intercon's Daily

Svyazinvest owns controlling interests in 85 regional telecommunications companies.

KOKH also said that the government will offer a 1.5 percent stake in electricity monopoly Unified Energy Systems (UES) in the autumn. The value of the stake currently exceeds $130 million. The government now owns a 52.7 percent stake in UES and foreign investors own 27.8 percent of the company's shares.

Business

LUKARCO Buys Five Percent of Tengiz Project

· Los Angeles-based Atlantic Richfield Corp. (ARCO) announced on Thursday that its LUKARCO joint venture with Russian oil conglomerate Lukoil has acquired a five percent interest from US Chevron Corp. in the TengizChevroil oil development project in Kazakhstan, said an ARCO press release. The $200 million purchase of a stake in a joint venture between Chevron, Mobil Corp., and the government of Kazakhstan was funded mostly by ARCO.

The Tengiz oilfield is currently producing about 160,000 barrels of oil per day. With completion of the sale, ARCO's interest in the field is currently estimated at 50 million barrels of oil.

"This acquisition is a significant step for the LUKARCO joint venture," said ARCO Chairman and CEO Mike R. Bowlin. "The scope of the Tengiz operation is expected to grow steadily over the years, bringing additional reserves for ARCO."

LUKARCO was formed by ARCO and Lukoil in February 1997 to invest in oil and gas opportunities in Russia and other countries. Lukoil owns a 54 percent interest in the joint venture and ARCO—46 percent. Investment in various projects could total $5 billion over 18 years.

In addition to the joint venture involvement, ARCO owns approximately eight percent of Lukoil's total equity—the result of convertible bonds purchased by ARCO in public offerings in 1995 and 1996.

Russian, US Cos. in CPC Project

· The Caspian Pipeline Consortium (CPC) has signed a $50 million contract with US Fluor Daniel and Russia's Girpovostokneft research institute to work on the CPC's oil export pipeline, reported

Reuters, citing a CPC statement. Fluor Daniel, an upstream oil and gas services firm is the principal subsidiary of engineering and construction company Fluor Corp. Girpovostokneft is a leading designer of oil and gas field and pipeline systems in Russia and Kazakhstan.

The CPC is building a $2 billion, 1,500-km pipeline from Kazakhstan's Tengiz oilfield to Russia's Black Sea port of Novorossiisk. Under a current restructuring plan, the composition of the Consortium was as follows: the Russian government (24 percent ownership); the Kazakh government (19 percent); the government of Oman (seven percent); Chevron (15 percent); Lukoil (12.5 percent); Mobil (7.5 percent); Russia's Rosneft (7.5 percent); British Gas and Italy's Agip (two percent each); and Kazakhstan's Oryx Energy Co. and Munaigaz (1.75 percent each).

Russian Cos. Allegedly Cheated by Thai Firm

· Six Russian companies involved in a joint venture in Thailand have accused their local partner of cheating them out of $980,000, reported Xinhua today, citing the Bangkok Post. The Russian firms recently decided to take the matter to the press after their complaints were ignored by local law enforcement authorities, said the newspaper.

The consortium of Russian, called the Krasnoyarsk Group, signed an agreement with Thailand's Almaz Group in May 1992 to set up a joint venture, called Thaisib International, to build a factory in Bangkok to produce garments for export to Russia, Europe, the US, and Japan.

The Russians allege that they paid $980,000, in two installments, into the venture to purchase land for the factory and to serve as equity. However, they said that, in 1994, they found that the joint venture was no longer operational and it was registered with capital of only two million baht ($80,000). Their local partner told them that a factory was being built in Samutprakan Province, but the Russians said they found no land had been purchased for the factory and their attempts to seek clarification were unsuccessful.

In May 1996, the Krasnoyarsk Group took the matter to the Economic Crime Investigation Division of the Thai Police Department, which has so far failed to take any action against the Almaz Group.

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European Republics

Ukraine, NATO Agreement Near

· Ukrainian Foreign Minister Gennady Udovenko told reporters on Thursday that NATO Secretary-General Javier Solana is expected to visit Kiev in May and unveil the alliance's proposals concerning a special partnership with Kiev. UDOVENKO just returned from talks with NATO in Belgium.

Ukraine Works on Corruption Problem

· The Ukrainian government is taking new steps to combat official corruption in the country. President Leonid KUCHMA on Thursday signed a decree creating a National Investigation Bureau, which is an independent law enforcement body with a position that is "higher than the Security Service and the Interior Ministry," reported Itar-Tass. Security Service chief Vladimir RADCHENKO said the Bureau would deal with "large-scale offenses," the exposure of corruption among top officials, and combating organized crime.

Following a session of Ukraine's Coordinating Committee against Corruption and Organized Crime on Thursday, First Deputy Premier Vasily Durdinets criticized some ministries and agencies for failing to implement an anti-corruption program and said that a number of senior officials will be dismissed. Durdinets named the ministries of transport, economy, and the coal industry for failing to combat corruption, and the administrations of the Donetsk and Lugansk regions for misusing public funds.

Also on Thursday, Ukraine's Prosecutor General's Office said it had filed a criminal suit against chairman of the parliament's commission on combating organized crime, Grigory Omelchenko, citing his interference in criminal investigations. "He gave orders how to conduct investigations and sometimes he ordered to drop cases," said Prosecutor General Grigory Vorsinov. The Prosecutor General said he had requested that parliament allow the institution of criminal proceedings against Omelchenko.

GM and Daewoo Plan JV in Ukraine

· US General Motors Corp. and South Korea's Daewoo Corp. will form a joint venture to produce cars at Ukraine's ailing Zaporozhye auto factory (AvtoZAZ), reported Dow Jones on Thursday. Ukrainian government spokesman Vasily Meterchuk told reporters that the division of stakes in the joint venture between the three companies will be determined by the results of a tender to be made public shortly. GM and Daewoo have both bid to be the foreign partner in a venture with AvtoZAZ, whose 1996 output of 7,000 cars, represented a nearly 10-fold decline from 1995 production.

Belarus to Restrict Telecommunications

· The Belarus Ministry of Communications may outlaw private telephone lines used "contrary to state interests and public order," reported Thursday's RFE/RL Newsline. Provisions for switching off these lines have been added to the Ministry's regulations governing phone use. The Ministry is currently reviewing the status of all phone lines in the country.

Metromedia Expands in Latvia

· New Jersey-based Metromedia International Group, through its wholly-owned subsidiary Metromedia International Telecommunications Inc. (MITI), announced on Thursday the launching of the second Global System for Mobil Communications (GSM) cellular system in Latvia, said a company press release. MITI's joint venture partners include Western Wireless International Corp., a subsidiary of Western Wireless Corp., the 11th largest cellular operator in the US, and Alina, a Latvian communications company. The cost of the GSM project is expected to exceed $40 million.

The service, which was launched on March 18, operates under the name Baltcom GSM and currently covers the cities of Riga and Jurmala.

Metromedia already has cable TV operations, radio paging services, and an FM radio station in Latvia, and other countries of eastern Europe.

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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