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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, May 30, 1997

Russian Federation


Yeltsin Explains the Founding Act

· In a radio address today, Russian President Boris YELTSIN assured the nation that the Founding Act signed between himself and the leaders of the 16 NATO member-states on Tuesday was a positive step for Russian and for European security. The agreement, which outlines the character and principles of relations between Russia and NATO, was intended to ease Russian fears over the NATO's planned eastward expansion. Russian nationalists and communists have criticized YELTSIN's signing of the agreement, describing it as a "capitulation."

In his speech, YELTSIN depicted Russian negotiations with NATO on a new relationship as necessary to maintaining peace and avoiding another Cold War in the face of NATO's dangerous initiative. "The task was to reduce to a minimum negative consequences of the expansion of the North Atlantic Alliance and to prevent another split in Europe," he said.

He described the negotiations and Russia's insistence on concessions as a triumph for Russian foreign policy. "Our energetic political and diplomatic efforts forced the NATO countries to take into consideration Russia's lawful interests."

He outlined the benefits derived by Russia from the agreement—NATO's commitment not to deploy nuclear weapons on the territory of the new member states, NATO's agreement not build up its armed forces close to Russian borders, and NATO's promise of regular consultations and cooperation between Russia and the Alliance within a new body.

Finally, YELTSIN suggested that Russia's inclusion in NATO decisionmaking would help guarantee

peace on the continent. "By signing the Russia-NATO document, leaders of 17 countries confirmed that a new Europe, not divided into military blocs, would really be created."

Yeltsin Finally Arrives in Ukraine

· Russian President Boris YELTSIN made a long-delayed, much-touted appearance in Kiev today and is scheduled to sign a friendship and cooperation treaty with his Ukrainian counterpart Leonid KUCHMA on Saturday. Russian presidential spokesman Sergei YASTRZHEMBSKY described the trip as "the most difficult visit and the important foreign policy act by the Russian president in 1997," reported Interfax.

Relations between Russia and Ukraine entered a downward spiral after the breakup of the Soviet Union, mainly as a result of disputes over the division of the Black Sea Fleet, Ukraine's debt to Russia, and a number of trade issues. It is hoped that YELTSIN's visit and the signing of the friendship treaty will reverse this trend and move the neighbors toward more constructive ties.


CB, Securities Commission Come to Terms

· The Russian Central Bank and the Federal Securities Commission have managed to settle their differences on problems of the regulation of that market, reported Itar-Tass, citing First Deputy Prime Minister Anatoly Chubais. The resolution is recorded in a proto

Today's News Highlights


World Bank Loan to Sea Launch

UES Chooses Price Waterhouse

Okulov Confirmed at Aeroflot

LOMO Wins IBRD Tender

European Republics

Lukashenko & the Opposition

South Caucasus & Central Asia

US Diplomacy on Karabakh

Turkmenistan Joins IFC

US Uzbek Bus. Cooperation




May 30, 1997

Intercon's Daily

Ruble = 5,773/$1.00 (CB rate)

Ruble = 5,756|5,790/$1.00 (buy|sell rates)

coordinated with the Central Bank, and will keep the Commission informed of its activities.

Within two weeks, the Commission will issue a general license to the Central Bank and will prolong for credit institutions the term of the exercise of professional activities on the securities market until January 1, 1998, on the basis of a license for banking operations, according to the protocol.

The conflict between the Central Bank and the Federal Securities Commission came to light recently, when Commission chairman Dmitry VasiliYev suggested that the USAID investigation into two Harvard Institute for International Development employees was sparked by his political opponents at the Bank. The two HIID employees were fired this week after USAID alleged that they used their positions as advisors on the Russian stock market for personal gain.

World Bank to Support Sea Launch Project

· The World Bank today approved two partial risk guarantees of $100 million each in support of commercial bank loans to the Sea Launch Limited Partnership, an international aerospace joint venture formed to launch commercial satellites from a mobile sea-based platform, said a World Bank press release.

The venture includes US Boeing Commercial Space Company with a 40 percent interest, Russia's RSC Energiya with a 25 percent interest, Norway's Kvaerner Maritime with a 20 percent share, and Ukraine's Yuzhnoye with 15 percent.

The guarantees are designed to cover the political risks associated with investments in Russian and Ukrainian enterprises needed to support the production and export of launch vehicles and related equipment from Russia and Ukraine. The guarantees will cover loans disbursed to Energiya and Yuzhnoye in order to finance their investment in the project.

The Sea Launch project is expected to foster substantial economic benefits for Russia and Ukraine by generating close to $2 billion of incremental exports for the two countries over the life of the project, thereby helping to maintain 20,000-30,000 high-wage, high-skilled jobs in Energiya, Yuzhnoye, and their subcontractors throughout Russia and Ukraine.

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col, signed by representatives of the Finance Ministry, the Central Bank, and the Securities Commission and approved by CHUBAIS, who is also Finance Minister.

Chubais told at a briefing today that the signing of the protocol removed all obstacles that has long blocked the development of the securities market, and established the principle of its indivisibility into the market for short-term state bonds (GKO) and the market for corporate securities, according to Itar-Tass. The implementation of provisions of the protocol will make it possible for enterprises to attract investments following common rules, he added.

The protocol says that a license that gives the right to professional work on the security market will cover all the types of securities, including state and non-state ones. The Securities Commission will issue licenses to organizers of trade on the securities market, including stock exchanges, for a period of 10 years, and to other professionals working on the securities market for a period of three years.

The issue of licenses and everyday control over professional activities, with the exception of work for the organization of trade, the registrar, and the work of the stock exchange and credit institutions on the securities market, will be carried out by the Central Bank on the basis of a general license from the Federal Commission. The Bank will issue licenses and keep under its control the work of credit institutions on the securities market on the basis of regulations, adopted by the Securities Commission and

When you need to know it as it happens




May 30, 1997

Intercon's Daily


UES Chooses Price Waterhouse

· Russian electricity monopoly Unified Energy Systems (UES) has recently announced its appointment of Price Waterhouse as group auditor, said a Price Waterhouse press release.

UES was created in 1992 through the privatization of state assets formerly under the control of the Russian Ministry of Fuel and Energy. UES owns and operates a transmission grid serving more than 125 million people and reaching across Russia. UES owns and operates electric power generation, transmission, and distribution facilities, and investments in subsidiary and affiliated enterprises.

The Russian government holds a 52 percent stake in UES and is seeking to transform it into an efficient commercial entity, capable of providing satisfactory returns to its shareholders and responsible for its own long-term viability. A key element of UES's transformation will be attracting foreign investment. This will require the availability of credible financial information prepared using international standards. UES has chosen the energy team of Price Waterhouse Russia, backed by its World Energy Group, to provide the support needed for this process.

Number of Private Firms Growing in Russia

· The East European Consulting Center in Berlin and the Russian Chamber of Commerce and Trade recently released the results of the research on the growth of private enterprises in Russia, reported Interfax-AiF. They concluded that sharp increases in the number of private enterprises over the last several years is evidence that a business infrastructure is being developed in Russia.

As of the end of 1996, nearly two million companies and enterprises were functioning in Russia, which is over five times more than in 1989, said the report. The number of state enterprises decreased from 215,000 to 160,000 over the same period.

In 1993, almost 43,000 enterprises were privatized or transformed into stock companies; in 1994—22,000; in the first half of 1996—only 2,800. Currently, only 80-90 percent of enterprises slated for privatization have been transformed into stock companies, but the responsibility for managing them

mainly remains in the hands of their former directors who do not take personal responsibility for losses.

Yeltsin Son-in-Law Heading Aeroflot

· The shareholders of Russian Aeroflot International Airlines, the country's largest carrier, voted today to confirm Valery OKULOV as the company's chief executive, reported the Associated Press (AP). OKULOV, who is married to President Boris YELTSIN's eldest daughter, was named acting director of the airline last month. OKULOV worked as a navigator on domestic and foreign flights for 10 years and was deputy director of Aeroflot before being named chief.

LOMO Wins IBRD Tender

· St. Petersburgbased optics company LOMO has won an International Bank for Reconstruction and Development (IBRD) tender to provide microscopes for Russian health care centers, reported Kommersant-Daily. Other bidders in the tender included such well known firms as Leica, Carl Zeiss, and Toyota. The value of the contract is only about $1 million, but LOMO managers believe that it will lead to additional orders.

LOMO, established in 1993, is one of Russia's leading companies. It produces and provides maintenance services for military and civilianpurpose optical and mechanical devices and instrument production. LOMO has four affiliates, four joint ventures with foreign partners, and 10,000 employees.

European Republics

Lukashenko to Hear Out Opposition

· Belarus President Aleksandr Lukashenko told a press conference on Wednesday that he is ready to open talks with the opposition, but warned that the constitution is not open to debate, reported Itar-Tass. He said he was "ready to hear any concrete proposals" from his political opponents.

The talks with the opposition were expected to start on Thursday in a meeting between members of the former Belarus parliament and representatives of the presidential administration, with European Union (EU) experts in attendance. Lukashenko said that the Belarussian leadership would enter in talks with the opposition, but would not bow to pressures from European or any other organizations.

When you need to know it as it happens




May 30, 1997

Intercon's Daily

LUKASHENKO also complained to reporters that foreign states had reneged on promises of aid. Belarus has been in conditions of self-sufficiency since the beginning of 1996, he said. "We have not got a single dollar in credits, not a single dollar in assistance from foreign states, including what they must have provided," Itar-Tass cited him as saying.

He noted that the US was to issue a total of $40 million in assistance to Belarus under an accord on transferring nuclear warheads inherited from the USSR to Russia. "However, the US has breached this accord refusing to finance the programs," said Lukashenko, adding that "this is an example of how big states fulfill their obligations."

South Caucasus & Central Asia

US Pressuring on Armenia over Karabakh?

· Joseph Pressel, US representative in the Minsk group of the Organization for Security and Cooperation in Europe (OSCE) on Nagorno-Karabakh, is currently in Armenia to help resolve the Karabakh conflict, and later he will travel to Azerbaijan, reported Itar-Tass. PRESSEL's main task is to prepare the conflicting sides for the scheduled arrival of the three co-chairmen of the Minsk group—representatives of Russia, the US, and France.

PRESSEL met with Armenian parliamentary speaker Babken Ararktsyan to discuss proposals based on compromise approaches that will be made to the conflicting sides. Speaking to Armenian Prime Minister Robert Kocharyan, he expressed the hope that a breakthrough would be achieved during the next round of talks.

Comment: Analysts have noted a connection between increased efforts to foster peace in the Caucasus and the development of oil deposits in the region. The choice of a major pipeline route to transport Azeri, and possibly Kazakh, Caspian oil to world markets is a driving force behind the intensified US diplomacy.

An article in today's Journal of Commerce suggests that US officials see the recent Russian-Chechen agreements as threatening their preferred pipeline route through Turkey. If Russia can show that instability in the region has come to an end, it can bolster its argument for a long-term pipeline through Russia. The Turkish route requires the pipeline to run through either Georgia or Armenia, both of which are plagued by potentially destabilizing, unresolved civil wars. US diplomatic efforts toward Karabakh—including, according to the Journal of Commerce, Washington's strenuous seeking of the OSCE co-chairmanship—appear aimed at changing this circumstance to put Armenia in the running as a possible pipeline route.

Other Intercon sources indicate that the State Department is using the Chechen-Russian deal as a lever to resurrect their formula for a Karabakh settlement with a peace pipeline, which is supported by the some members of the Armenian global community.

Turkmenistan Joins the IFC

· The International Finance Corp. (IFC), an arm of the World Bank, announced on Thursday that Turkmenistan has been accepted as its 172nd member, said an IFC press release. Initially, the IFC expects to play a role in developing Turkmenistan's financial sector, supporting to small- and medium-sized enterprises, structuring and financing major projects related to natural resources extraction and processing, and providing technical assistance to the private sector.

US-Uzbek Chamber of Commerce Meeting

· The US-Uzbek Chamber of Commerce held a conference, entitled "Uzbekistan: A Center for Attracting Foreign Investments in Central Asia," on May 26 in Tashkent, said the US Department of Commerce. Uzbek government representatives participating in the meeting noted that 130 joint projects with investment of $8 billion worth of foreign capital are currently operating in Uzbekistan. The bulk of the joint ventures are involved in the development of the oil and gas industry, mining, and machine-building.

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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When you need to know it as it happens