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, May 2, 1997

Russian Federation

Politics

Albright & Primakov Make Progress?

· US State Secretary Madeleine Albright departed Moscow today, having held two rounds of talks with Russian Foreign Minister Yevgeny Primakov and a telephone conversation with President Boris YELTSIN. Neither ALBRIGHT nor PRIMAKOV would comment on their discussions on a NATO-Russia charter, which they are seeking to conclude by the target date of May 27.

A Russian Foreign Ministry spokesman also gave no details on the talks, but said that: "Certain progress has emerged in the discussion of issues related to the preparation of the document setting up relations between Russia and NATO," according to Reuters. PRIMAKOV will hold further talks on the charter with NATO Secretary-General Javier SOLANA in Luxembourg on May 6.

Russian-Chechen Accord Expected Soon

· Russian President Boris Yeltsin may meet with Chechen President Aslan Maskhadov next week in Moscow to hold final negotiations on a political accord, Chechen presidential spokesman Kazbek Khadzhiyev is quoted by Itar-Tass as saying today. The exact day of the talks has not been fixed yet, but the two leaders could sign an agreement before May 10.

The possibility of high-level talks was discussed on Wednesday at a meeting between Maskhadov and Russian Security Council secretary Ivan Rybkin in Grozny. After the meeting, Chechen Deputy Prime Minister Movladi UDUGOV told Interfax that the two delegations had done all they could and talks had to be completed at the highest level. "We are unable to make any steps further without the two

presidents because neither side has corresponding powers," UDUGOV is quoted as saying.

During the Grozny meeting, RYBKIN and Chechen officials also addressed the recent spate of violent incidents in the North Caucasus. Russian officials have blamed Chechen terrorists for explosions at two railway stations—Armavir in Krasnodar Krai and Pyatigorsk in Stavropol Krai.

Interior Minister Anatoly KULIKOV announced on Tuesday that his agency had arrested two women who were responsible for the Pyatigorsk bombing and they had confessed. On Thursday, however, RYBKIN told television reporters at the airport following his return from Grozny that KULIKOV was in error. He said that in Grozny he had met with one of the women accused by KULIKOV. He held up a picture of himself with the woman and insisted that she had nothing to do with the bombing. RYBKIN also announced that Russia would jointly investigate the bombings with Chechen authorities.

Economy

April Inflation Drops to One Percent

· Russian monthly inflation in Russia fell to one percent in April, compared with 1.4 percent in March, said the State Statistics Committee (Goskomstat). This is more good news for the YELTSIN government, which has been pursuing tight monetary policies. The rise in prices for April was mainly attributed to higher

Today's News Highlights

Russia

Transaero Introduces New Route

Russia Inflation Chart

Internet Provider Expands

European Republics

US CTR Funds for Ukraine

World Bank Grant for Belarus

South Caucasus & Central Asia

Aliyev Considers Armenia Route

Shevardnadze in Armenia

Japan Bank Opens in Tashkent

Politics-Economics-Business

Page

Friday

May 2, 1997

Intercon's Daily

Ruble = 5,750/$1.00 (NY rate for Thurs.)

users can expect "quality Internet access" within the next 3-4 months, reported Interfax, citing a company spokesman. Relcom plans to spend the time to prepare to launch more channels.

Relcom's main competitors are Demos and Sovamteleport. Together, the three companies have 90 percent of Russia's Internet market.

Relcom has 10,000 subscribers at its Moscow hub. The company also controls about 150 regional hubs across Russia and the CIS, each of which averages 500 to 1,000 subscribers.

The company made $5 million in 1996 and invested $3 million in technical development, company president Andrei SOLDATOV told Interfax.

Dec Jan Feb Mar Apr

prices for services. Prices for services are expected to increase further in the next few months as the government lifts subsidies for housing and utilities.

Business

Transaero Introduces New Route

· Russian private carrier Transaero will introduce twice-weekly, non-stop service between Moscow and Manchester, England, on 1 July 1997, reported M2 Communications today. Transaero's 98-seat Boeing-737 flights replace services operated by Aeroflot Russian International Airlines, which withdrew from the Manchester-Moscow route earlier this year.

In 1995, the International Air Transport Association (IATA) named Transaero the world's fastest growing airline. Last year, Transaero carried over 1.5 million passengers on routes to 30 cities in Russia, the CIS, Europe, and the US. New weekly services between Moscow and Hong Kong are scheduled to begin later this year.

The Manchester flight lands at Moscow's Sheremetyevo-1 airport, where Transaero operates from a newly refurbished passenger terminal. Transaero is the only carrier offering onward flights from the same Moscow terminal building.

Internet Provider Improving Service

· Russia's Relcom, one of the country's three largest Internet providers, has opened a two-megabyte-per-second hookup to Amsterdam's EuNet and

European Republics

US to Fund Ukraine Silo Destruction

· The US on Thursday agreed to grant Ukraine $47 million to dismantle SS-19 ballistic missile silos and other military facilities, reported United Press International (UPI). US Defense Secretary William Cohen signed the agreement with Ukrainian Defense Minister Aleksandr Kuzmuk at the Pentagon. COHEN said the Ukrainians' 1993 decision to eliminate their strategic nuclear weapons was "a bold and progressive choice."

The funds, provided under the Nunn-Lugar Cooperative Threat Reduction program, will also help Ukraine to start destroying its arsenal of SS_24 missiles. The defense chiefs signed two other agreements designed to boost military cooperation during KUZMUK's visit to the US. Cohen also announced on Thursday that he will visit Ukraine this summer to watch Ukrainian-led military exercises.

Politics-Economics-Business

When you need to know it as it happens

Page

Friday

May 2, 1997

Intercon's Daily

World Bank Enviro. Grant for Belarus

· The World Bank on Thursday approved a $6.9 million grant to Belarus from the Global Environmental Facility (GEF) to help finance an Ozone Depleting Substances (ODS) Phase-out Project, said a Bank press release. The project will assist Belarus in the rapid phase-out of ODS consumption, such as chlorofluorocarbons (CFCs) in refrigerants and solvents, by replacing them with cost-effective, ozone-friendly alternatives. It will also support technology transfer for the phase-out of ODS fire protection.

The GEF grant will allow Belarus to substantially meet its obligations to phase-out ODS assumed under the 1987 "Montreal Protocol on Substances that Deplete the Ozone Layer."

Explosion in Downtown Vilnius

· A blast occurred at 10:35 a.m. local time today at a downtown market in Vilnius, leaving one man dead, but no injured, reported Itar-Tass. According to the Vilnius prosecutor's office, the bomb was placed in a garbage container in the marketplace. The blast was not powerful, however, accounting for the low casualty rate.

South Caucasus & Central Asia

Aliyev to Consider Pipeline via Armenia

· Azeri President Geidar ALIYEV has widened the debate over the route for a major Caspian oil pipeline by offering to consider the possibility of a pipeline passing through Armenia, reported today's Financial Times. ALIYEV said that the construction of a main export pipeline across Armenia was possible, if Yerevan relinquished the some 20 percent of Azeri territory that it captured during the Nagorno-Karabakh conflict.

Earlier this year, ALIYEV said that he preferred to build a pipeline though Georgia to export oil output from a major development project in the Azeri sector of the Caspian. The project is being carried out by an international consortium, the Azerbaijan International Operating Company (AIOC), which will have the final word on a pipeline route.

Armenia has said that it would not exchange territory for a pipeline, but it could still be drawn in by the huge transit fees to be earned from the route.

Shevardnadze Visiting Armenia

· Georgian President Eduard Shevardnadze arrived in Yerevan today for his first official visit to Armenia, where he will meet with President Levon Ter-Petrosyan and other top officials. The prime ministers and foreign ministers of the two countries, as well as the mayors of their capital cities, will also conduct talks.

Following two days of talks, the sides are expected to sign 12 documents, including a joint communiqué and a package of intergovernmental agreements. The accords will cover the development of economic ties and cooperation in postal and wireless communication, transport communication, the legal sphere, as well as on science, culture, and education.

Georgia, Abkhazia Unhappy with Russia

· Both Georgian and Abkhazian leaders today expressed dissatisfaction with Russian efforts to help bring about a political settlement between Tblisi and the separatist region. Georgia is trying to put pressure on Moscow by tying a resolution in Abkhazia to an agreement on Russian military bases in Georgia, while Abkhazia is calling for the involvement of Western mediators in the negotiations.

Georgian President Eduard Shevardnadze told reporters in Yerevan today that Russia holds the key to a Georgian-Abkhazian settlement, but it does not seem "to do its best for stopping the confrontation," according to Itar-Tass.

Shevardnadze directly linked Georgian ratification of the agreement on Russian military bases in Georgia, signed in September 1995, with the Abkhazian problem. "When signing the agreement, I took the responsibility with a reservation that Russia, placing its bases on this territory, would solve the problem of Georgian territorial integrity, that is the Abkhazian problem, together with us," he said. "If this is not done, there will be problems with ratification."

Meanwhile, Abkhazian Deputy Prime Minister Konstantin Ozgan said today that the Abkhaz authorities are ready to invite Western mediators to the negotiations with Georgia, reported Itar-Tass. Commenting on the results of a recent visit to Sukhumi by Russian Foreign Ministry officials Gennady Ilyichev and Lev Mironov, Ozgan emphasized that,

When you need to know it as it happens

Politics-Economics-Business

Page

Friday

May 2, 1997

Intercon's Daily

"Abkhazia's attitude toward numerous proposals from leading states of Europe and America to widen the circle of participants in the talks depends on Russia's future position in the negotiating process."

The Georgian-Abkhazian peace talks, under Russian mediation, started in Adler in August 1992, at which time a cease-fire agreement was reached by the two sides. The latest round of talks took place in Moscow in December 1996.

A Look at Textile Sector in Uzbekistan

· Textile-making and related machinery is one of the most promising investment opportunities in Uzbekistan for foreign enterprises, according to the Economic Intelligence Unit's latest Business Report on Uzbekistan. The Uzbek government is actively investing in the sector and is trying to encourage increased foreign investment.

Uzbekistan is the world's fifth largest cotton producer, with output forecast at 5.5 million bales in the 1996/97 season. Currently, only 15 percent of the cotton fiber produced in Uzbekistan is processed there; of those textiles that are produced, 70 percent of the output is consumed domestically. The current investment program is intended to raise domestic capacity to be able to process 30 percent of the cotton harvest.

Uzlegprom, the state association for the production of light industrial goods, handles 90 percent of local cotton textile production, but its annual output has been declining (from 700 million sq. meters in 1993 to an estimated 650 million sq. meters in 1996) as the private sector develops.

The production of the entire sector was worth more than $510 million in 1995. The government, determined to raise the standard of processed cotton to world levels by the end of the century, has announced plans to invest $300 million in light industry in 1996-97 to reach that goal, according to Uzlegprom chairman Mirabror Usmanov. Observers predict

that a total of between $500 million and $1 billion is needed to modernize and expand the industry.

Currently, most textile-production equipment is imported from Germany, Italy, Japan, and South Korea. Demand for machinery in 1995—much of which remained unfulfilled—was estimated at $48 million. The Uzbek textile industry is still dependent on imports of synthetic threads, fibers, dyes, paints, and chemicals, all of which could be produced with raw materials available in Uzbekistan if suitable machinery were available.

Japanese Bank Opens in Uzbekistan

· Japan's Sakura Bank has become the first Japanese bank to open an office in Tashkent, reported RIA Novosti. Sakura Bank has maintained a cooperative relationship with the National Bank of Uzbekistan since 1994, granting many credits for industrial projects in the country.

In Uzbekistan, the Japanese bank will focus its activities on the fuel and energy sector, the cotton-processing sector, the production of precious and non-ferrous metals, and the tourist industry. It is considering participation in the reconstruction of the Fergana oil refinery and construction of the Shurtan Gas Chemical Plant, according to Interfax.

With capital of $15.5 billion, Sakura Bank is the fifth largest bank in Japan and the tenth in the world.

ADB Plans Offices in Uzbekistan, Kazakhstan

· The Asian Development Bank (ADB) announced today that it will establish resident missions in Kazakhstan and Uzbekistan, reported M2 Communications. The missions, expected to open by the end of the year, will facilitate coordination with the governments and donor agencies, and will help ensure project quality.

In late 1996, the ADB approved a new country operational strategy for Kazakhstan and an interim operational strategy for Uzbekistan.

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

available for non-profit institutions.

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.

When you need to know it as it happens

Politics-Economics-Business

Page