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

Tuesday, May 6, 1997

Russian Federation

Politics

Primakov Says Russia Ready to Compromise

· Russian Foreign Minister Yevgeny Primakov told reporters in Strasbourg today Russia is ready to meet NATO halfway to conclude an agreement on a new relationship, but "its partners in negotiations should display the same readiness," reported Itar-Tass. The minister attended a session of the Council of Europe's Committee of Ministers today and then traveled to Luxembourg to meet NATO Secretary-General Javier Solana.

"Certainly, both NATO and we have limits that cannot be exceeded. We do not demand anything extraordinary because we are witnessing a transformation of NATO and consolidation of the European factor. Still, we want to minimize the negative consequences NATO eastward expansion will have, and thus we want [security] guarantees," PRIMAKOV is quoted as saying.

The foreign minister noted that he "is cautiously optimistic" about his meeting with Solana. "It will be a very important meeting to show the degree of NATO readiness for a reasonable compromise."

Two Russian Journalists Freed from Chechnya

· Two Russian journalists from the Urals, held hostage in Chechnya since March 14, were freed today by Chechen Interior Ministry troops, reported Russian news agencies. Olga BAGAUTDINOVA and Aleksandr UTROBIN, correspondents for the Satka district newspaper, were being held in an apartment in Grozny. Two kidnappers were arrested and another escaped.

Another four Russian journalists are still being held in Chechnya, but today's rescue operation is a

victory for Chechen authorities who have promised to get the crime situation in the region under control.

Bomb Scare at Pushkin Square

· Russian police and emergency personnel rushed to the Pushkin Square metro station in central Moscow this morning after an anonymous caller warned that a bomb was planted in one of the underground passages, reported RIA Novosti. The call came at 10:30 a.m. Hours of searching did not uncover any explosive device and service is running as usual.

Air Force General Commits Suicide

· Major-General Viktor SHIPILOV, 49, a former air attaché to Yugoslavia, jumped to his death from the window of his 15th floor apartment in Moscow today, reported Interfax. He left no note. SHIPILOV had recently been undergoing medical treatment. Russian TV said that he was army intelligence (GRU).

In the last few years, poor morale and drastic living conditions have prompted a rash of suicides among military men, mainly conscripts and junior officers.

Economy

Ruble = 5,758/$1.00 (NY rate)

Ruble = 5,766/$1.00 (CB rate)

Ruble = 5,744|5,788/$1.00 (buy|sell rates)

Economy Ministry Concludes Restructuring

· The Russian Economy Ministry has completed a reorganization required as a result of the abolition of the Industry and Defense Industry Minis

Today's News Highlights

Russia

Population Decline Drastic

Timber Cos. Form Union

State Cos. Face Audits

European Republics

WHO Sees Poor FSU Health

Ukraine Buys Boeings, Airbuses

Ukr. Plans Vladivostok Mission

South Caucasus & Central Asia

Azeri-Turkish Strategic Accord

Oil Equipment Park in Azerbaijan

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Tuesday

May 6, 1997

Intercon's Daily

tries in the recent Cabinet reshuffle, reported Interfax. Economy Minister Yakov URINSON told reporters on Sunday that his ministry has been divided into four major functional groups, each led by a first deputy economy minister, which will be responsible for specific economic areas.

Andrei SHAPOVALYANT will head the first section, which will be in charge of economic, regional, and social issues, including education and health care. This group will also deal with issues concerning the housing and utilities sector.

The second section, to be led by Ivan MATEROV, will prepare macroeconomic forecasts, budget forecasts, fiscal, credit, foreign trade, and investment policies.

The third section, headed by Andrei SVINARENKO, will be responsible for work on structural and industrial policies. This group is expected to oversee several sectors, including the fuel and energy, chemical, engineering, and forestry sectors. The key task for this group is to handled economic regulation problems, including structural reforms and upgrades, rather than actually running these industries, said URINSON.

The fourth section, to be headed by URINSON himself, will be in charge of the defense industry and oversee state defense orders. It will include several units for different types of arms and military equipment—aviation, ship-building, ammunition, and so forth. This section will also analyze the financial standing of defense enterprises, their marketing programs, plans for structural changes within enterprises, and the repayment of debts.

Several consulting commissions, including a commission on military-industrial policy, are expected to be created, said URINSON, adding that these commissions would include the directors of major defense companies and chief experts.

Drastic Population Decline in Russia

· A Russian presidential advisory board has warned that Russia is facing a severe demographic crisis caused by rising death rate and a falling birth rate, reported Reuters. A special presidential commission on the problems of women, family, and demography released a report saying that between the late 1980s and mid-1990s Russia's demographic

indicators fell from the levels of a developed country to those of a third world nation.

The report said that 2.2 million people died in Russia in 1995, but only 1.5 million were born. In contrast, 1.5 million people died and 2.2 million were born in Russia in 1989. This trend continued in 1996, it said.

The report said that more than half of the deaths in Russia were caused by circulatory diseases. The second biggest killers were accidents, poisoning, and trauma, followed by cancer.

In general, the worsening demographic situation in post-Soviet Russia is believed to be the result of a decline in living standards caused by economic crisis as well as by the general collapse of the national health care system.

Northwest Timber Companies Form Union

· The directors of timber companies in Russia's northwestern Leningrad Oblast have established a union to help local timber industry pull out of its current crisis. The region's felling volume has decreased from seven million to two million cubic meters, chairman of the regional committee on forestry Andrei Nelidov told Itar-Tass today. As a result of rapid privatization, the structure of the industry was disrupted, said Nelidov.

The new union and the regional committee intend to rent part of the region's forests on a long-term lease. Of the 600 logging companies in Leningrad, some 100 have already applied to participate in the leasing program, according to NELIDOV.

The union's immediate objective is to create marketing, technical, and investment services which would provide consultations for companies as well as a mutual benefit fund. Arnold Chusovsky who heads the board of directors at the Lenles company, was elected chairman of the union of timber companies' directors.

Business

State-owned Companies Face Audits

· The Russian government will audit several major companies in which it holds a controlling stake this year, Russian government spokesman Igor SHABDURASULOV told a press conference today.

When you need to know it as it happens

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Tuesday

May 6, 1997

Intercon's Daily

The list of companies to be audited includes gas monopoly Gazprom, electricity utility Unified Energy Systems (UES), Rosneft oil holding company, Rosgosstrakh insurance company, Aeroflot International Airlines, Rosugol coal company, Transneft pipeline company, Moscow's Sheremetyevo airport, Sovkomflot company, and the Railways Ministry.

A Russian privatization agency officials told Reuters that four auditing firms_two Russian and two Western—were chosen by tender to carry out the audit project, which is being funded by the European Bank for Reconstruction and Development (EBRD).

According to Dr. Annie SASCO is the WHO's Cancer Control Program in Geneva, lung cancer poses a particular threat to women in former communist countries because of a major increase in cigarette smoking among women. She said it would take two decades the harmful effects of smoking will begin to be seen.

The WHO report also projected a 40 percent increase in prostate cancer for men in the region over the next 25 years.

Air Ukraine Buys Two Boeings, Three Airbus

· Ukrainian national carrier Air Ukraine will purchase two Boeing 767-200ER airliners for its transatlantic routes and three Airbus A320-200s for medium-range flights, reported Reuters, citing a National Agency for Reconstruction and Development statement. The Ukrainian government agency said that the decision was taken by a two-thirds majority in the tender committee, which included government officials, experts, and Air Ukraine officials.

The decision appears to be a compromise between

European Republics

WHO Sees Poor FSU Health

· A new report from the World Health Organization (WHO) says that the outlook for increases in the worst chronic diseases is "particularly serious" for the former Soviet Union, and Central and Eastern Europe, reported RFE/RL on Monday. The problems are outlined in "World Health Report 1997: Conquering Suffering, Enriching Humanity," a document made public by WHO on Sunday.

WHO deputy director Dr. David BRANDLING-BENNETT said Sunday that unhealthy behaviors by large numbers of men and women in the former Soviet republics and central and eastern Europe are major factors in the predicted increase in ailments such as heart disease and lung cancer. Speaking at a press conference in Washington, he cited very high rates of smoking throughout the region, unbalanced diets and a lack of physical activity as the behaviors most frequently linked to heart disease and several forms of cancer.

BRANDLING-BENNETT said the former communist countries are facing what he calls the double burden of non-communicable (heart disease, cancer, etc.) and contagious (caused by infection and parasites) diseases with weaken resources.

He said that the public health establishment in these countries is still struggling to recover from the collapse of the command economy system and the transition to free market economies. The public health systems and the medical establishments can no longer count on government subsidies, and some countries are facing gaps in basic medical services.

UPCOMING EVENTS

Transit `97 Exhibition &

Transport Conf.—Transit Potential in Kazakhstan

May 22_25, 1997

Almaty, Kazakhstan

Organized by: the Atakent Exhibition Center

and the Kazakh Ministries

of Transport and Communications

Info: Atakent Company

Tel: (7-3272) 44-87-64; Fax (7-3272) 50-92-38

or the US Commercial Service in Almaty

Winning Strategies in Russia, California Style `97

June 11, 1997

The Fairmont Hotel, San Jose, CA

Organized by: the Russian-American

Chamber of Commerce

with the assistance of

US Department of Commerce, BISNIS

Information: RACC

Tel: 303-745-0757; Fax: 303-745-0776

E-mail: russia@rmi.net

When you need to know it as it happens

Politics-Economics-Business

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Tuesday

May 6, 1997

Intercon's Daily

the two foreign airplane manufacturers, holding out the promise of more orders for both, said Reuters. The prices that Ukraine paid for the new aircraft were not disclosed.

Air Ukraine flies to New York and Toronto, but wants to add Miami, Los Angeles, Washington, as well as renew its canceled Chicago route, by 1999. The airline owns nine Ilyushin IL_62s, 30 Tupolev Tu_134 and Tu_154s, 30 Yakovlev Yak_40 and Yak_42s, and 64 Antonov An_24s. Some are grounded because of age and a decline in passenger numbers.

Ukraine to Open Consulate in Vladivostok

· Ukraine plans to open a consulate-general in Vladivostok, a major port city in the Russian Far East, before the end of the year, reported Itar-Tass. The Ukrainian Foreign Ministry has sent a proposal on a consulate in Vladivostok to the Russian Foreign Ministry, said the report.

Ukraine would be the first member-country of the Commonwealth of Independent States (CIS) to open a consulate in Vladivostok. The city currently boasts consulates-general of the US, India, Japan, South Korea, Australia, and the Philippines. China plans to open a mission in Khabarovsk, another far eastern port city, before the end of the year. Two consulates-general, of North Korea and Vietnam, have been operating in the far eastern port of Nakhodka for many years.

South Caucasus & Central Asia

Azerbaijan-Turkey Sign Strategic Accord

· On Monday in Ankara, Azeri President Geidar ALIYEV and his Turkish counterpart Suleyman DEMIREL signed a "Declaration on the Deepened Strategic Cooperation," which condemns Armenian aggression in Nagorno-Karabakh, reported Xinhua. The declaration states that the two countries will establish the necessary mechanisms for developing strategic cooperation along military, economic, and social lines.

"The sides will help each other within the context of their strategic partnership and using methods foreseen by the United Nations, in the even that their sovereignty, territorial integrity, the inviolability of their borders are endangered," Xinhua cited the declaration as saying. The document said that Nagorno-Karabakh is an "inalienable part of Azerbaijan" and urged Armenia to withdraw its forces from the occupied areas of Azerbaijan and help solve the problem of 1.5 million refugees.

ALIYEV and DEMIREL signed a number of other bilateral agreements including cooperation accords on navigation, air and land services, settlement of border conflicts, and development of small- and medium-size enterprises.

Oil Equipment Sellers in Azerbaijan

· Azerbaijan has attracted $18 billion in capital investment from foreign oil companies, which has encouraged oil equipment companies to initiate major projects in the country, said a recent report from the US Embassy in Baku. For example, a British company has begun to develop the local oil field supply infrastructure.

Consolidated Supply Management (CSM) has formed a joint venture with the state oil company of Azerbaijan (SOCAR) to build an oil field vendor park. The joint venture, called Caspian Logistic Services (CLS) is building Azerbaijan's first integrated supply base. The base is located in Primorsk, 23 km south of Baku, and is 16 km from the Azerbaijan International Operating Company's (AIOC) storage terminals at Sangachal.

The CLS facility includes a newly-upgraded port at Primorsk, 9,000 square meters of warehousing, and 48,000 square meters of open storage, including 10,000 square meters of pipe racks. The CLS yard is located along Azerbaijan's main highway to Georgia, Iran, and Russia and has a rail spur running directly into its supply base. The total area of the park is 300 hectares to allow for future development.

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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