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, April 3, 1997

Russian Federation

Politics

Chernomyrdin Denies Le Monde Report

· Russian Prime Minister Viktor Chernomyrdin earns about $700 a month and has no major property holdings or assets, government spokesman Igor Shabdurasulov told reporters on Wednesday. The spokesman denied press reports that CHERNOMYRDIN holds $5 billion in shares of Russian gas monopoly Gazprom, which the prime minister headed before joining the government. "There was no such thing as Gazprom shares when CHERNOMYRDIN became premier, and the prime minister does not have them now," Interfax quoted him as saying.

Labor Minister Melikyan Resigns

· Russian Labor Minister Gennady Melikyan tendered his resignation last Friday for undisclosed reasons, reported Itar-Tass today. State Duma deputy chairman Aleksandr Shokhin said that Melikyan has already agreed to run for a State Duma seat from the Rostov region in an election scheduled for June.

Duma Forms Anti-NATO Commission

· The Russian State Duma on Tuesday announced that it has established an anti-NATO commission aimed at opposing NATO's planned eastward expansion, reported Xinhua. The new commission, which will work on the collection and analysis of information about NATO's expansion, consists of 15 Duma deputies, including representatives of all political groups in the parliament.

The commission also issued a statement urging the Russian people to hold a protest on May 9, which marks Russia's victory over fascism, reported Interfax. The statement said NATO expansion could threaten Russian people of all political beliefs and that the protest will be backed by all Russians.

Yeltsin Nominates Human Rights Chief

· Russian President Boris Yeltsin today nominated Deputy Justice Minister Lyudmila Zavadskaya for the post of Russian Federal Human Rights Commissioner and sent the nomination to the State Duma for approval, reported Itar-Tass. Duma chairman Gennady Seleznyov said the parliament will consider the president's candidate, along with the nomination of a number of Duma factions, on Friday.

Russia has been without a human rights commissioner for two years. The former commissioner, prominent activist, Sergei KovalYOV was ousted in March 1995 by the Duma for his criticism of Russian conduct in the Chechnya war. A new federal constitutional law on a human rights commissioner was passed only last month.

Economy

Ruble = 5,738.75/$1.00 (NY rate)

Ruble = 5,735/$1.00 (CB rate)

Ruble = 5,728|5,742/$1.00 (buy|sell rates)

Camdessus Promises Funds Will Flow

· International Monetary Fund (IMF) Managing Director Michel CAMDESSUS told Wednesday's Izvestia that the IMF will continue to provide Russia with loans. CAMDESSUS arrived in Moscow on Monday to finalize discussions with the Russian government about its 1997 reform program.

Today's News Highlights

Russia

Camdessus in Moscow

Moskvich Shares to Moscow

Cigarette Plant for Petersburg

Littlewoods to Sell Russia Shops

Canada Co. Wins Silver Tender

Russia Short Takes

Ericsson Gets Russia Orders

South Caucasus & Central Asia

Abkhazia Decision Controversial

OPIC Eyes Caucasus Fund

Politics-Economics-Business

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Thursday

April 3, 1997

Intercon's Daily

Today, CAMDESSUS met with President Boris YELTSIN in the Kremlin and pledged that Russia would receive the next tranche of a $10 billion IMF loan in May. He said he saw no difficulties for the implementation of the IMF program to continue after it had been suspended two months before.

The IMF has decided to provide Russia with a $21 billion credit to facilitate the implementation of reform and ensure GDP growth of five percent in the Russian economy by 2000, said CAMDESSUS.

Yeltsin OKs Moskvich Transfer to Moscow

· Russian President Boris Yeltsin today signed a decree transferring the state's controlling interest in Moscow automaker Moskvich to the city of Moscow, explaining that the move is necessary to streamline the industrial management system in the Russian capital, reported Itar-Tass. Moscow city authorities had proposed the transfer to Moscow's ownership 59.07 percent of Moskvich shares rather than try to sell them in order to strengthen the company and, therefore, the city economy.

The decree calls for the government to conclude an agreement on the transfer of shares with Moscow and support the restructuring of Moskvich.The agreement calls for Moscow authorities' guarantees to make Moskvich back payments to the federal budget and Russia's Pension Fund within two years.

Production at Moskvich fell to 2,929 units last year from 40,600 units in 1995, according to today's Journal of Commerce, but its prospects look better for this year. France's Renault has signed a deal to supply the Moskvich plant with 40,000 engines for installation in a new Moskvich model, the Aleko.

Renault's chief representative in Moscow, Jean-Paul SIMET, told the Journal of Commerce, that the deal was being held up by the planned transfer of Moskvich shares from the federal government to the city of Moscow.

Cigarette Plant Planned for Petersburg

· US Rothmans of Pall Mall (International) Ltd. plans to build an $80 million cigarette plant in St. Petersburg this fall, reported Interfax today. Leo MCLOUGHLIN, Rothmans managing director for the CIS, told the news agency that the new plant is expected to produce six billion cigarettes a year and

would play a key role in the company's Russian business operations.

Rothmans currently manufacturing one billion of its Dallas brand at a joint venture in which it has a controlling stake with St. Petersburg cigarette plant Nevo-Tabak. Rothmans currently has market shares of 11 percent in Moscow and nine percent in St. Petersburg.

Business

Canada Firm Wins Dukat Silver Tender

· Canada's Pam American Silver Corp. has won a tender for 49 percent of Russia's Dukat silver complex, developer of the former Soviet Union's largest silver mine, reported Reuters, citing Russian Property Fund officials. The Canadian company offered investments worth $302.6 million, well above the minimum offer of $77.7 million. The tender offered 139.58 million shares at a starting price of 10,000 rubles.

Under the terms of the tender, Pan Am Silver must transfer 20 percent of the sum within one month of signing a formal deal and invest the whole sum before the end of 1999 for modernization. It must also pay Dukat's debts of over 300 billion rubles over a three-year period.

Dukat, based in the far eastern Magadan Oblast, has recoverable reserves of 14,000 tons of silver and 30 tons of gold, according to the local geology committee. It contains about two-thirds of Russia's unmined silver reserves.

Littlewoods to Sell Russian Stores

· Littlewoods, Britain's largest private company, announced today that it planned to sell its retail operations in Russia as part of a drive to dispose of its non-core businesses, reported PA News. Littlewoods had been running trial retail operations in Western Russia since 1991 and currently has four stores in St. Petersburg, including one in the Gostiny Dvor shopping center, and franchise operations in several other Russian cities. The company employs a total of 320 people in Russia.

Despite what it called encouraging sales at its foreign outlets, the company feels "it is no longer appropriate to continue international operations."

When you need to know it as it happens

Politics-Economics-Business

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Thursday

April 3, 1997

Intercon's Daily

RUSSIA SHORT TAKES

n During first two weeks of April, a tender for government stakes in five large coal companies—Bashkirugol, Vostsibugol, Krasnoyarskaya ugolnaya kompania, Leningradslanets, and Khakasugol—will be held. Up to 70 percent of coal companies' shares are expected to be placed.

n In 1996, Slovenia exported $292.3 million worth of goods to Russia, while imports from Russia were worth $208.5 million, with the volume of services standing at $200 million.

n In Moscow alone, there are dozens of official car dealers and at least 100 non-official (called gray) dealers. These gray dealers, by 1995, were selling about 80 percent of all cars purchased in Moscow. During the last few years, however, Russians have begun frequenting official dealers more often because they offer maintenance services.

n Oneksimbank subsidiary, Interros-Oil, has transferred its 34 percent share of the Sidanko oil company to Cantupun, a Cyprus-registered firm, in return for a bank loan for an unidentified amount. Oneksimbank received the stake in a shares-for-loans auction in September 1996 in return for $20 million and $60 million worth of investments. Interros-Oil bought the state's 51 percent stake in a January 1997 auction for $130 million.

n According to experts from Russia's Center for Economic Analysis, the combined total assets of Russia's 10 largest commercial banks increased by 45 percent in 1996 and currently equal 273 trillion rubles. These banks are: Russia's savings bank Sberbank, Vneshtorgbank, Oneksimbank, Inkombank, Menatep, Rossiisky Kredit, SSB-Agro, National Reserve Bank, International Finance Corporation (MFK), and Mosbiznesbank.

n Moscow-based Mezhcombank (International Commercial Bank) announced on April 2 that it had opened a representative office in London.

n According to Vladimir Vinogradov, chairman of the Moscow Banking Union and President of Inkombank, the situation in the banking sector declined in 1996. The possibilities for banks to accumulate profits were limited significantly and the total amount of investments fell by 16 percent.

Ericsson Gets New Russia Orders

· Swedish telecommunications group LM Ericsson Telefon has been awarded a major contract for three new D-AMPS/AMPS systems by Millicom International Cellular (MIC) in Russia, said a company press release. Two of the systems will cover the Kemerovo Region in southwestern Siberia and one will cover the Republic of Udmurtia in the Urals. The initial subscriber capacity for the three systems is 5,800. The contract is one of the largest orders ever for wireless systems in these regions.

MIC, the second largest D-AMPS/AMPS operator in Russia, currently has more than ten wireless ventures in Russia. This new contract will increase the number of MIC operations using Ericsson equipment to seven. MIC's regional market share has now increased to almost 25 percent. MIC and Ericsson are also planning extensive expansions of Millicom's networks throughout Russia.

South Caucasus & Central Asia

CIS Decision on Abkhazia Prompts Action

· A decision made at the CIS heads of state summit in Moscow Friday to extend the mandate of the Russian peacekeeping force in Abkhazia until July has caused a furor and led to a rethinking of policy positions from a number of quarters. During the summit, Russia also agreed to make its operations in Abkhazia more active and take under its control a wider buffer zone between Georgian troops and Abkhazian rebels.

Under the decision, the current buffer zone, a 24-km swath along the de facto Georgian-Abkhazian border, will be extended several km and the peacekeepers are to be given policing powers to help guarantee the success of refugee return efforts. The 1,500 peacekeepers have been stationed in Abkhazia for some three years, but have made little progress in achieving the goal of repatriating some quarter of a million ethnic Georgian refugees.

Georgian President Eduard SHEVARDNADZE lauded the decision, saying that it will bring benefits to the region. "Step by step we are moving forward. A bold example of this is that there is the real prospect that [some of] the population can return to [Abkhazia]," he said in his weekly radio address on Monday. Before the summit, SHEVARDNADZE threatened to

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Thursday

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Intercon's Daily

remove the peacekeepers if Russia did not give Georgia more help in restoring control over Abkhazia and repatriating the refugees, reported Reuters.

Abkhazian leaders were incensed at the decision, insisting that they had not been consulted about the extension of the buffer zone and that no changes could be made to the peacekeepers mandate without their agreement.

Abkhazian parliamentary speaker Sokrat DZHINDZHOLIA said the Abkhazian side would not tolerate an expansion of the "buffer zone" and warned that if Russia and Georgia try to push ahead with the plan, "the peacekeepers further stay in Abkhazia will become impossible," according to Dow Jones.

Abkhazian Foreign Minister Konstantin OEGAN told RIA Novosti that the resolutions adopted at the summit "were made behind Abkhazia's back, they contradict its national interests and we refuse to fulfill them." He also did not rule out the possibility "of a serious sharpening of the situation in this region already in the near future."

The Georgian parliament, which has been insisting on the replacement of Russian peacekeeping troops with peacekeepers from other countries, was also unhappy about the decision. Today, the parliament unanimously passed a resolution on restoring the territorial unity of Georgia and ensuring the stability, sovereignty, and security of the country. Parliamentary speaker Zurab Zhvania told the parliamentary session on Abkhazia that the main goal of the document was to analyze the development and present state of Russia-Georgia relations.

"Lack of progress in the settlement of the Abkhaz conflict will not only make the Georgian leadership raise a question in connection with the stationing of Russia's peacekeeping contingent in Abkhazia," ZHVANIA is quoted by Itar-Tass as saying. "It may bring about our revision of the whole complex of

Russian-Georgian relations, first of all military cooperation issues." According to the speaker, the draft concept, which was worked over the past two weeks, will become a program of further actions by the Georgian parliament.

Ethnic Georgians forced to flee the violence in Abkhazia in 1993 were planning a mass demonstration in front of the parliament building in Tblisi today, despite a plea from ZHVANIA to abandon the idea.

Meanwhile, the Russian Foreign Ministry this week abruptly postponed scheduled talks with Abkhaz President Vladislav ARDZINHBA in order to rethink its position on Abkhazia, reported RFE/RL Newsline on Tuesday. Russian officials have insisted that the decision on the peacekeepers benefits both sides and will help bring about a settlement to the conflict.

OPIC Considers Caucasus Investment Fund

· The US government's Overseas Private Investment Fund (OPIC) is exploring the possibility of setting up a $45 million Caucasus Fund composed of $15 million private equity and as much as $30 million of OPIC-guaranteed debt, according to a recent cable from the US Embassy in Tblisi. OPIC has been approached by parties interested in creating such a fund and will be undertaking due diligence on them.

The fund would make equity investments in private sector commercial and industrial enterprises and participate in privatization where appropriate in Georgia, Azerbaijan, and Armenia. The fund would have a term of 10-12 years with generally 4-5 years to invest the capital and must offer returns to its private equity investors commensurate with the risk (e.g. 25 percent plus).

OPIC generally avoids a fixed allocation for countries in a regional fund of this nature but will require that guidelines of no more than about 45 percent for any single country and no more than around 75 percent for any two countries to ensure that the fund is active throughout the region.

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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