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

Monday, May 19, 1997

Office. The former military prosecutor, Valentin Panichev, resigned for health reasons.

Demin was head of the Russian Federal Security Service's (FSB) legal department for five years. The 52-year-old Demin has a doctorate in law and is a professional officer. He graduated from the higher school of the KGB, worked for the KGB Moscow department, attended post-graduate courses and was a professor at the KGB higher school. Since 1990, he worked for the KGB central staff and became head of a department.

Well-known Magadan lawyer Vladimir Butkeyev was elected deputy of the Russian State Duma from the Magadan electoral district No. 103 in a special election on Sunday.

Former Deputy Def. Min. Charged w/Corruption

· A top Russian general and former deputy defense minister was charged with large-scale corruption and abuse of power on Friday, reported Interfax. Army General Konstantin Kobets, Russia's chief military inspector, was charged with accepting a bribe from a construction company that built military housing, as well as of abuse of his post and of illegal possession of firearms.

Kobets allegedly accepted a $300,000 country house from the Lyukon construction company in exchange for a housing construction deal. Lyukon reportedly received the money from the deal, but never

Russian Federation

Politics

Russia-NATO Act Signing Set

· French President Jacques Chirac stopped over in Moscow for an hour en route home from Beijing and held a one-hour meeting with Russian President Boris Yeltsin. CHIRAC endorsed the idea of holding a signing ceremony for the Russia-NATO Founding Act in Paris on May 27.

Some Government/Leg. Changes

· The Russian government has appointed Yuri Korsun as a deputy minister of fuel and energy, reported Prime-Tass today, citing a resolution signed by Prime Minister Viktor Chernomyrdin on May 15. Korsun worked as a chairman of the Russian Federal Energy Commission until he was relieved of this post by a May 14 presidential decree.

According to a government resolution of May 12, the Russian Ministry of Fuel and Energy is allowed to have 12 deputy ministers, including four first deputy ministers. The first deputy ministers of fuel and energy are Aleksandr Yevtushenko, Sergei Kirienko, Viktor Ott, and Anatoly Shatalov.

President Boris YELTSIN today promoted Agriculture Minister Viktor KHLYSTUN to the rank of deputy prime minister, said the presidential press service. He will retain his ministerial portfolio. During the government reshuffle earlier this year, the deputy prime minister in charge of agriculture was dismissed, prompting loud complaints from Agrarian Party members in the legislature, as well as from KHLYSTUN himself.

The Russian Federation Council on Thursday confirmed the nomination of Lieutenant-General Yuri Demin as the new head of the Military Prosecutor's

Today's News Highlights

Russia

The Week's Happenings

Official Charged in Bombing

WItness Protection Law Passed

Japan Backs Russia on G-8

Russia to Sell Oil Firm Stakes

US-Russia P-Kamchatsky Mtg.

Decree on Land Ownership

Moscow Buys a TV Channel

Iran to Build Rus. Plane Engines

Moscow Air Freight Conference

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The Week's Happenings

¨ Russian President Boris Yeltsin will meet with the speakers of both houses of Russian parliament, and with the heads of the leading factions in the State Duma on May 19 to brief them on the Russia-NATO treaty.

¨ On May 18-20, a Russian delegation, led by Deputy Foreign Minister Grigory Karasin, will take part in a meeting of member-countries of the ASEAN Regional Forum on security issues to be held on the Langkawi Island, Malaysia. The Forum includes 20 countries of the Asia-Pacific Region and representatives of the European Union.

¨ On May 21, Russian Prime Minister Viktor Chernomyrdin will brief the State Duma on the state of the economy in the first quarter of this year and First Deputy Prime Minister Anatoly CHUBAIS will present the government's plan for reducing expenditures in the 1997 federal budget. The Duma will then debate the budget sequestration bill as well as a bill, forwarded by the Communist faction, on a 300 trillion rouble money issue.

¨ Japanese Foreign Minister Yukihiko Ikeda will arrive in Russia for talks on May 22_24. He will meet with President Boris Yeltsin and Foreign Minister Yevgeny Primakov. Ikeda reportedly hopes to arrange an exchange of visits at the prime ministerial level and hold talks on the disputed Kurile Islands.

people, reported Itar-Tass, citing assistant Prosecutor-General Alexander Zvyagintsev. Five other people were detained for the cemetery bombing.

The cemetery blast killed five top executives of the Afghan War Invalids Foundation, including its chairman Sergei Trakhirov. Some 50 people were wounded. Those killed and wounded at the Moscow cemetery were attending a memorial service for Mikhail LIKHODEI, the former head of the AWIF who himself was killed by a bomb two years before.

The Foundation was set up in 1991 as a charity to help provide social and medical services and jobs for Afghan war veterans. Valery RADCHIKOV was its chairman. The AWIF split up in the summer of 1993 when some of its regional branches accused RADCHIKOV of withholding information on revenues. Two branches of the AWIF were formed; one was headed by RADCHIKOV and the other by LIKHODEI.

A presidential decree of December 22, 1993, exempted the fund from import duties on many items, including cigarettes and alcohol. The huge income from commercial activities attracted the attention of organized crime.

Duma Passes Witness Protection Law

· The Russian State Duma on Wednesday passed the first witness protection law in Russian history, reported Friday's RFE/RL Newsline, citing Kommersant-Daily. The law permits crime victims, eyewitnesses, and experts who testify against criminals to apply for protected status. Protected individuals could be provided with bodyguards or firearms and, in extreme cases, moved to another part of the country and given new documents, financial aid, and housing. If protected individuals are killed, their families will receive special compensation benefits.

Interior Ministry officials cited by Kommersant-Daily welcomed the law, said RFE/RL. They pointed out that the law will end the practice of releasing the names and addresses of all court witnesses in criminal cases, which is said to have hindered criminal investigations in the past. The law still must be approved by the Federation Council and signed by the president.

Japan Backs Russia and Concept of G-8

· The Japanese government plans to abandon

completed the project. The charges against KOBETS were first leveled by State Duma Defense Committee chairman Lev ROKHLIN who objected to KOBETS' possible candidacy for defense minister.

KOBETS is currently in the hospital, having suffered a mild heart attack last month.

Official Charged in Cemetery Bombing

· Valery Radchikov, the chairman of the Afghan War Invalids Foundation (AWIF), has been charged with masterminding a bombing at the Kotlyakovskoye cemetery on November 10, 1996, which killed 14

When you need to know it as it happens

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its position as the only G-7 country that objects to bringing Russia in as a member of the Group of Seven industrialized countries, reported today's Financial Times, citing Japanese Foreign Ministry officials. "It would not be a wise policy for Japan alone to voice caution," a Japanese diplomat told the FT.

The change of stance by Japan, which opposed Russia's formal inclusion in the upcoming G-7 summit in Denver, will allow greater participation in the June summit. The meeting will now be known officially as the Summit of the Eight, with the main communiqué being issued on political and a limited range of economic issues by all eight countries. However, the original G-7 states—the US, Japan, Italy, Great Britain, France, Germany, and Canada—will also hold some meetings without Russian representatives and issue a separate statement.

Japanese Foreign Minister Yukihiko Ikeda is expected to officially inform the Russian leadership about Japan's decision on the G-7 during his visit to Moscow at the end of this week.

Japan and Russia are attempting to improve bilateral ties which have long been strained by a territorial dispute over four Kurile islands, captured by the Russians during World War II. The dispute does not appear near resolution, but both sides have been playing down the issue in an attempt to improve diplomatic and economic relations.

The announcement on the G-7 follows a three-day visit to Japan by Russian Defense Minister Igor Rodionov who on Saturday pledged to reduce the number of Russian troops stationed on the Kuriles.

Economy

Ruble = 5,762/$1.00 (NY rate)

Ruble = 5,771/$1.00 (CB rate)

Ruble = 5,750|5,792/$1.00 (buy|sell rates)

Russia to Sell Oil Firm Stakes

· Russian President Boris YELTSIN has signed a decree ordering the government to sell state stakes in six oil companies at cash auctions, said the presidential press service. The companies named are the Tyumen Oil Company, Norsi Oil, Komitek, Vostsibneftegaz, SIBUR, and the Eastern Oil Company. Details on the auctions were not disclosed.

Russian East Meets American West

· The first plenary session of the working group of the US-Russian Gore-Chernomyrdin commission that represents the Russian Far East and US West Coast opened in Petropavlovsk-Kamchatsky today, reported Itar-Tass. The three-day meeting in the city on the southeastern coast of the Kamchatka Peninsula which was opened by co-chairmen—the governor of Kamchatka and a US Department of Commerce adviser— brings together Russian and US business executives to discuss cooperation.

Over 80 representatives from US business and government and over 100 Russians from various regions of Siberia and the Far East are attending the meeting. The main discussions will be held at sessions on energy, communications, the fishing industry, tourism, ecology, and trade and finance.

Decree on Land Ownership

· Russian President Boris YELTSIN on Friday signed a decree giving individuals and companies the right to buy and sell land in cities and towns, reported Dow Jones. Despite years of market reforms, land ownership has remained tightly restricted and a draft law regulating land titles has languished in the State Duma for four years. The new decree gives privatized companies priority in buying the sites of their operations, and land will be included in future privatization.

Lack of ownership rights has prevented companies from using real estate as collateral for corporate fund-raising and hindered property development, said Dow Jones. The measure to liberalize land ownership in urban areas was a condition for the continued disbursement of a $10 billion loan from the International Monetary Fund (IMF).

Luzhkov Plans Moscow TV Channel

· Moscow Mayor Yuri LUZHKOV is planning to create a city-owned television channel to push the city's political agenda, reported today's Financial Times. "I think that for Moscow, for the political and economic interests of Moscow, the existence of such a channel is vitally necessary," Anatoly LYSENKO, head of the city committee on telecommunications and the mass media, is quoted as saying.

LYSENKO said that the city paid between $1 and $5 million for the rights to a national channel, which will

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become Center TV, when it is granted a license to commence operations.

The costly plan shows the importance that LUZHKOV places on obtaining control over a major media outlet. The media in Russia is mainly controlled by large corporations and the federal government and LUZHKOV's relationships with the heads of media outlets have deteriorated of late. As head of the largest city in the country and a presidential aspirant, LUZHKOV considers ownership of some means of mass communications vital to his political future.

Business

Iran to Build Russian Plane Engines

· Russia plans to license Iran to build 60 engines for passenger planes under a $165 million deal, reported today's Wall Street Journal. The Moscow-based MAPO design bureau and Iran's State Industrial Aerodesign Co. will sign a contract allowing Iran to build TV7_117 turboprop engines. The engines will be installed on Ukrainian An_140 passenger jets. Iran has already signed an agreement with Ukraine to assemble the planes in Iran.

Russia Freight Transport Conf. Held

· A major air cargo industry conference, the Second Moscow International Freight Transport & Logistics Conference, was held in conjunction with the TransRussia `97 Exposition last week. Speaking at the conference on Friday, Garth H. Davies, secretary general of the International Air Cargo Association, said: "Each air cargo sector appears to be operating in isolation, as a `mini-industry,' preserving and guarding what it conceives as its own territory, and selling its services to the other mini-industries and/or the shipper," reported M2 Communications.

Davies told the participants that until recently none of these "mini-industries" in Russia ever talked to each other about the air logistics industry, and had not conceived the need to make a concerted effort to achieve the level of service the shipper and the

customer demand. "Nor did they produce remedies to improve the record of dismal, stagnant delivery performance existing over the past 10 years, as revealed in the Unisys study," he added.

The Unisys study disclosed that in 1996 it took six days, embracing more than 40 events, for the average air cargo shipment to reach its destination in the CIS—no change from the results of another similar study conducted 25 years ago, said the report.

DAVIES noted that, even in the face of the problems and flawed practices in the industry, air logistics professionals must not lose sight of the enormous opportunities that lie ahead in Russia and the CIS countries. DAVIES pointed out that in Russia, whose neighbors include the great underdeveloped markets of China and India, the air cargo future looks particularly positive.

"Some would say to Russian enterprise, `The world is your oyster!' Indeed, the relatively limited availability of surface transportation throughout Asia creates an unusual opportunity for a giant leap forward based upon air cargo distribution and flexibility, DAVIES is quoted by M2 Communications as saying.

"Here the problem is not one of surface transportation evolution and replacement, but a giant burst into the future without the mistakes, delays, and experiments of the past. As a world leader in heavy lift aircraft, Russia and its associated countries can make a direct and critical contribution to the development of highways, power plants, refineries, and manufacturing of all kinds. This requires not just airplanes but also an integrated intermodal capacity to provide a new level of service for new needs."

The TIACA secretary general predicted that the industry will evolve in a similar direction as the retail and communications industries, consolidating all facets to work under one coordinated master plan, global in concept, propelling the industry into the 21st century.

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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