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

Wednesday, May 28, 1997

Russian Federation

Politics

Russia & Ukraine Ready for Accord

· Russian Prime Minister Viktor Chernomyrdin announced in Kiev today that the final details of a dispute with Ukraine over the division of the Black Sea Fleet have been settled. The two sides have been negotiating the division of the Soviet-era fleet for more than five years and the dispute has soured relations between the Slavic neighbors.

Today's breakthrough not only clears the way for the signing of agreements on the division of the fleet and its basing, but allows the signing of a broad friendship and cooperation agreement between the two countries during Russian President Boris YELTSIN's trip to Kiev later this week.

Meanwhile in Tblisi, another actor has entered the stage. Visiting Ukrainian Defense Minister Aleksandr KUZMUK told reporters that he supported Georgian participation in the division of the Black Sea Fleet.

Georgian President Eduard SHEVARDNADZE today reiterated that his country wants to participate in the division of the Fleet. He told reporters in Tblisi that his country claims the ships that were anchored in the Georgian port of Poti before 1992 and withdrawn without the consent of the Georgian government.

Economy

Ruble = 5,759.5/$1.00 (NY rate)

Ruble = 5,774/$1.00 (CB rate)

Ruble = 5,754|5,794/$1.00 (buy|sell rates)

US to Invest Big in Russia

· US businesses are now on the threshold of new large-scale investments in the Russian economy,

said US congressman Kurt WELDON, who is in Moscow as co-chairman of the State Duma-US Congress Working Group, reported RIA Novosti. US businessmen "still have a wish to invest billions of dollars into Russia since they treat it as an equal economic partner with huge potential," he said. A delegation of US legislators arrived in Moscow earlier this week to discuss trade and economic issues with their Russian counterparts.

Airport Conference in Moscow

· The sixth international conference "Airports Yesterday, Today, and Tomorrow" opened at Moscow's Sheremetyevo-2 international airport today, bringing together about 250 specialists from 20 countries. The main topics of the meeting will be attracting investment, prospects for development, economic strategy, management, and other issues. The program also includes an exhibition of Russian and foreign engineering and equipment for airports. The conference will last until May 30.

Air Traffic Controllers Strike in Tyumen

· Air traffic controllers at the Roschino airport in the Western Siberian city of Tyumen staged an indefinite strike today, demanding payment of wage arrears dating back to November 1996, reported Itar-Tass. As a result, flights to all destinations in Russia, including commercial and transit flights, have been canceled.

Business

Gazprom-Poland Deal

· Russian gas monopoly Gazprom and Polish state mining company PGNiG

Today's News Highlights

Russia

Gazprom Orders German Pipes

No Foreigner to Own Gazprom

Advertising Industry Booming

Moscow Seeks 850 Sponsors

South Caucasus & Central Asia

Iran Joins Caspian Oil Group

Georgia-Ukraine Mil. Accords

World Bank Loan for Turkmen

MRC in Kazakh Gold Deal

Tajik Peace Deal Signed

Politics-Economics-Business

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Wednesday

May 28, 1997

Intercon's Daily

signed an agreement on May 20 on financing the first line of the Polish section of the Yamal gas pipeline, reported Reuters, citing an industry official. Gazprom agreed to put up $1.01 billion and PNGiG will supply $350 million for the pipeline, which will link Germany and major gas fields in Western Siberia, according to Kazmierz ADAMCZYK, president of the Polish-Russian Europolgaz joint venture set up to build the Polish section. ADAMCZYK said that the second line of the Polish section will cost only $1 billion. Gas will begin flowing through the first line late in 1998 or in early 1999.

The pipeline will provide Poland with 14 billion cubic meters (bcm) of gas annually. The total capacity of the pipeline will be 65.7 bcm annually by 2010.

Gazprom Orders Pipes from Germany

· Germany's Mannesmann announced today that it has received an additional partial order for the delivery of large diameter pipes to Russian gas monopoly Gazprom for the Yamal gas pipeline, said a company press release. With a total order volume of approximately 917,000 tons, this is the largest order in the history of Mannesmann's large diameter pipe production, it said.

The pipes will be produced at the Mulheim plant of Europipe, an associated company of Mannesmannrohren-Werke. The first partial order for 148,000 tons, which was received in June 1996, has already been delivered.

Russia to Force Sale of Gazprom Stock

· Russian President Boris YELTSIN will soon sign a decree under which foreign investors who bypassed restrictions and bought shares in gas monopoly Gazprom on the local market will be forced to sell those shares within three months, reported Dow Jones. A government source said that the decree will apply even to organizations which are formally Russian residents, but are owned or otherwise controlled by foreign investors.

Until the end of 1999, foreign investors will need the approval of the Federal Securities Commission to buy Gazprom shares on the domestic market.

Russian Advertising Industry Booming

· The turnover of the Russian advertising market

increased by 10 percent in 1996, compared with 1995, and totaled $1.1-1.5 billion, according to Vladimir Yevstafyev, general director of the association of Russian advertising agencies. Speaking at the "Russian Advertising Market" international conference, he said that television advertising turnover amounted to $344 million, the press advertising turnover reached some $700 million, the turnover of billboard advertising amounted to $150 million, and the turnover of radio advertising was about $80 million, reported Prime-Tass.

The most popular television channel among domestic and foreign advertisers is Russian Public Television (ORT), which earned $100 million in advertising revenues last year. ORT is followed by the

Russian television company (RTV) with $67 million in revenues and Russian independent television (NTV) with $58 million.

Yevstafyev stressed that Russia's imperfect tax legislation has led to unfair conditions for Russian advertisers. They cannot include advertising spending in the basic cost of the product (show) and have to include it in revenues, which actually doubles the advertising cost, he said.

As a result, foreign companies are leading on the Russian advertising market. It is also responsible for the success of free advertising pamphlets, which ran $330 million worth of advertising, while newspaper advertising amounted to $280 million and magazine advertising to $130 million.

According to Yevstafyev, the Russian advertising market is developing dynamically. A great number of efficient Russian advertising agencies have emerged and they are able to compete with foreign companies. At the same time, the formation of the Russian advertising market is not complete.

Moscow Seeks Sponsors for 850th

· The Moscow city government is seeking to sell as many corporate sponsorships as possible for its 850th anniversary celebration in September to offset the costs of the festival and the city improvements being done to prepare for it. According to the Moscow Times, Coca-Cola has already given the city $1.5 million to be the official soft drink for Moscow and Volvo is negotiating to be the official car.

When you need to know it as it happens

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The city is offering a range of sponsorships from $50,000 for individual events all the way up to $5 million for general sponsor status, with the goal of raising $15 million. Official bank status will require a $1.5 million donation, official air carrier and official communications sponsors will have to pay $750,000 each, official insurer—$520,000, official computer—$1 million, and official timepiece—$520,000.

In return, the city is promising to provide prime advertising opportunities on television and radio, and public displays around the city. All Moscow-based advertising agencies have donated 15 percent of their advertising space to the city government under a "rather voluntary-compulsory" program, said the Times.

reporters that Ukraine supports Georgian participation in the division of the Black Sea Fleet.

World Bank Loan for Turkmenistan

· The World Bank on Tuesday approved two loans totaling $64.5 million to Turkmenistan for an Urban Transport Project ($34.2 million) and a Water Supply and Sanitation Project ($30.3 million), said a World Bank press release. The loans will help finance improvements in urban transport in Ashgabat, Mary, and Chardjou, and in water supply systems and sanitation in the Dashkhovuz Velayet, the region of Turkmenistan most severely affected by the environmental crisis of the Aral Sea basin.

The Urban Transport Project aims to preserve and improve, on a sustainable basis, the efficiency and effectiveness of the urban transport fleet in three of Turkmenistan's main cities through the following three components: increasing the supply of transport vehicles ($20.4 million); maintenance and rehabilitation of vehicles already in the transport fleet; and technical assistance and training of to agencies in charge of urban transport operations.

The Water Supply and Sanitation Project aims to improve the health of the population in the region most affected by the Aral Sea disaster by investing in water and sanitation infrastructure. This is the first infrastructure investment project in Turkmenistan. It is designed to be simple and has four components: water supply improvements; sanitation and health improvements through training, education, provision of equipment; institutional strengthening through a public awareness campaign and the establishment of a water authority; and project management and supervision of water supply systems.

Mineral Resources in Kazakh Gold Deal

· Mineral Resources Corp. announced on Tuesday that it has reached an agreement in principle to acquire CEP Mining (Central Asia) Ltd.'s equity interest in a joint venture to develop the Boko/Vasilyevskoye gold deposit in Kazakhstan, said a company news release. Upon the completion of the acquisition, MRC will acquire CEP's 70 percent equity interest in the joint venture in consideration for the issue of one million MRC common shares and an option to acquire an additional one million shares at C$2.50 cash.

South Caucasus & Central Asia

Iran Joins Caspian Oil Group

· Iran's Oil Industries Engineering Co. signed a deal in Baku Tuesday to acquire 10 percent of an international consortium developing the Lenkoran and the Talysh Deniz oilfields in the Azeri sector of the Caspian Sea, reported Reuters, citing the Islamic Republic News Agency (IRNA).

"According to the agreement, the state oil company of Azerbaijan SOCAR will give 10 percent of the developing shares in the oil fields to the OIEC," said the IRNA report. IRNA estimated the cost of the project at $1.5-2 million.

Germany's Veba AG unit Deminex also announced on Tuesday that it had joined the consortium with a 10 percent stake. The consortium also includes France's Elf Aquitaine with 40 percent, and Italy Agip and Belgium's Petrofina with five percent each. SOCAR also holds a stake. The fields, located south of Baku, are believed to contain up to 140 million tons of recoverable oil.

Georgia-Ukraine Military Agreements Signed

· Georgia and Ukraine on Tuesday signed six agreements on military cooperation including accords on cooperation between the two countries' air defense forces and air forces, and on cooperation in training officers, reported Itar-Tass. The agreements were signed during a visit to Tblisi by Ukrainian Defense Minister Aleksandr Kuzmuk, who told

When you need to know it as it happens

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Intercon's Daily

The company said the option is exerciseable only if MRC decides to proceed with development of the property beyond the initial work program. MRC will control the management of the joint venture. It noted that MRC is committed to an initial work program which includes confirmatory drilling of $1.5 million to be completed by December 31, 1998.

The company said it believes that "the properties involved have the potential to produce a commercial open pit gold project of sizable proportion."

Mineral Resources said it intends to raise financing for the project of a minimum of $1.5 million and up to $3 million, through the private placement of additional common shares. It is anticipated that $2 million will be required for feasibility and pre-production development work including the confirmatory drilling. Any additional amount raised will be for working capital for the company, it said.

Another Tajik Peace Accord Signed

· The Tajik government and United Tajik Opposition (UTO) today signed a comprehensive peace agreement aimed at ending the five-year civil war that has devastated the country, reported Xinhua. A protocol signed by the two Tajik sides and observers from 11 countries and international organizations declared that the UTO will be allotted 30 percent of posts in the government and 25 percent of seats in the Central Electoral Commission.

The protocol also said that Tajikistan will carry out the reintegration, disarmament, and disbanding of the UTO armed units as well as the reform of the power structures of Tajikistan.

The Protocol on the Guarantees of Implementation of the General Agreement on Establishment of Peace and National Accord in Tajikistan was signed by the Tajik Foreign Minister Talbak Nazarov, the opposition group's deputy leader Akbar Turjanzadeh, Gerd Dietrich Merrem, a representative of the UN secretary general, along with observers of 10 coun

tries and international organization.

The observers include Iran, Pakistan, Russia, Turkmenistan, Uzbekistan, Afghanistan, Kazakhstan, Kyrgyzstan and the Organization for Security and Cooperation in Europe (OSCE) and the Organization of Islamic Conference (OIC).

The protocol will ensure the voluntary return of all refugees and displaced persons to their homes, provide amnesty for persons who took part in the civil conflict and political confrontation, and lift the bans and limitations on the activities of political parties and movement that are part of the UTO and on the mass media.

UN special envoy Merrem declared that the final peace accord will be signed by Tajik President Emomali Rakhmonov and the UTO leader Said Abdullo Nuri in Moscow on June 14.

Updates

Chechnya: The Russian Fuel and Energy Ministry and Chechnya's Southern Oil Company (Yunko) signed a general cooperation agreement on Friday, company head Khozh-Akhmed Yarikhanov told Itar-Tass. According to Yarikhanov, this basic agreement "opens up prospects for active and mutually advantageous cooperation." Detailed agreements on the development, transportation, and processing of oil will be signed soon, he added.

Yarikhanov said that before June 5 the Chechen government will prepare a program for the restoration of the republic's petrochemical industry in 1997.

Meanwhile, reliable sources close to Chechen leader Aslan Maskhadov told Itar-Tass that the uncontrolled development and processing of oil by armed groups of criminals has caused great damage to the republic's economy. According to the Chechen Interior Ministry, about 5,000 underground oil processing mini-installations operate in the republic, stealing more than 1,000 tons of oil a day.

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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