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

Monday, June 16, 1997

This week the Daily Report on Russia will

present guest articles from the embassies of the

Newly Independent States (NIS) in the US.

demonopolization, privatization, debt restructuring, banking reform, the lifting of profitability controls, and price liberalization.

Recently two more steps were taken in this direction: the adoption of the decree "On Establishing the State Committee on Investments," and of the law "On State Support of Direct Investments."

According to the decree, the State Committee on Investments (Goskominvest) is the sole government body with the right to carry out government policies to support direct investment, i.e., is meant to be a "one-stop shop" for investors.

The Committee is in charge of the creation of the system of dealing with foreign investors, preparation of proposals aimed at stimulating investment, improvement of the investment climate, coordination with other state bodies on procedures relating to the use of direct investments, preparation and promotion abroad of information on the state of economy and needs of Kazakhstan in direct investments, and control over the process of implementation of investment projects including the observance by approved investors of their obligations.

The Committee is also the only state body authorized to sign a contract with an investor to determine the process of implementation of a particular investment project and the state support for it. After signing a contract with the Committee, a legal entity becomes an approved investor.

The Committee is headed by the country's first deputy prime minister. It consists of four directorates: (1) administration, registration and control; (2) research; (3) public relations and coordination and; (4) project evaluation. The first directorate accepts applications from investors and provides information on investment projects and application forms from

INTERCON SPECIAL REPORT:

FOCUS ON KAZAKHSTAN

Today's contribution is from the Embassy of the

Republic of Kazakhstan in Washington, D.C.:

Kazakhstan: Relationship with the US

Kazakhstan and the United States have enjoyed a warm bilateral relationship since Kazakhstan became an independent country in 1991. Kazakhstani-US cooperation initially developed in order to promote nuclear disarmament. In 1994 the Presidents of Kazakhstan and the USA signed the Charter on Democratic Partnership, the basic document that regulates cooperation between the two countries in the political, military, humanitarian, scientific, and technological spheres.

The scope of economic cooperation is reflected through the fact that in terms of direct foreign investment in Kazakhstan, investment from the US amounts to 66 percent of the total, overwhelmingly exceeding investment from all other countries.

Investment Climate in Kazakhstan

Kazakhstan has made impressive strides toward a market-based economy, particularly on the macroeconomic level, since independence in 1991. The average rate of inflation is down to two or three percent monthly, and overall production is now increasing in the country.

Since 1994, the Kazakhstani government has taken a number of actions to spur greater foreign investment. These reforms include laws on such issues as

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potential investors and accepts completed applications from investors. The second directorate confirms whether an investment project corresponds to existing legislation and checks to see whether privileges and preferences may be applied. The third directorate assists in obtaining all necessary documents to carry out the activity. If all three directorates give their approval, the application goes to the fourth directorate for final approval. A board of directors confirms the decision, and independent experts evaluate the project upon signing the contract, the first directorate will control the fulfillment of the terms of the contract.

The Law, "On State Support of Direct Investments," introduces necessary legal guarantees to protect the interests of investors and ensure contract terms of approved investors against future changes and amendments to the current legislation of the Republic of Kazakhstan. The law also sets up a system of privileges and preferences for approved investors.

Investment policy is aimed at providing selective support to the most important sectors of production and spheres of activity defined as state priorities and to create a favorable regime for the inflow of investment. Some additional benefits will be provided to entrepreneurs investing in the priority sectors. Currently, the benefits may be state grants consisting of free provision of land; equipment and raw materials belonging to the state; complete or partial exemption from customs duties on the import of equipment or raw materials; or beneficial taxation applicable to priority projects.

The Law also regulates issues related to an annulment of the contract with the investor and procedures to resolve disputes. However, the Law, which was signed in late February 1997, is not retroactive.

Recently, the Kazakhstani Government published a list of top priority sectors on which it will focus efforts to attract direct foreign investment before the year 2000. The list is designed to provide a blueprint for the work of the State Investment Committee, which will offer customs and tax breaks to investors in the following sectors of the economy:

· Infrastructure. This includes railways and rail transportation services; roads; airports and air terminal complexes; air navigation facilities; marine and

river ports; bridges and overpasses; power and heating stations; transformer substations; power lines, except main power lines; and telecommunications networks.

· Manufacturing and Processing. This includes production of high quality clothing; yarn; tissues; footwear; fur and leather products; high quality furniture and accessories; cartons and paper products; agricultural processing, fish processing; agricultural product storage, baby food, confectionery products; soft drinks and wines; technologically advanced machinery; equipment and tools; automobiles, including cars, trucks, mass-transit vehicles, and specialized automobiles, as well as other transportation equipment industrial electronics and electromechanical equipment; consumer electronics; mineral fertilizers; home chemical products; perfumes; herbal products and preparations; veterinary medicine; finished non-ferrous and ferrous metal products; aluminum products using the latest high-efficiency technology; new and advanced types of construction materials; and waste recycling.

· Facilities in Akmola. This includes facilities associated with the government's relocation to Akmola, Kazakhstan's new capital city.

· Housing, Social Sector Facilities, and Tourism. This includes commercial housing, health care and education facilities; sports; culture, and tourism facilities; and resorts.

· Agriculture. This includes the cultivation of high productivity seed plants; breeding of high-productivity cattle and fowl, as well as breeding herds; and environmentally-friendly food and food additives.

The Ambassador

Bolat Kabdylkhamituly NURGALIYEV has served as the Ambassador of the Republic of Kazakhstan to the United States since March 1996. He worked in the Foreign Ministry of the USSR from 1980 to 1992, including stints as the USSR Ambassador at the Embassy in Pakistan and India. NURGALIYEV joined the Kazakh Foreign Ministry in 1992 and was Deputy Foreign Minister between April 1994 and February 1996. He is a graduate of the foreign languages faculty of the Tselinograd State pedagogical institute and speaks English and French.

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INTERCON SPOTLIGHT: Kazakhstan to Hold Energy Investment Tenders

The Kazakh Finance Ministry's privatization department launched seven new investment tenders on May 16, 1997. The tenders include three thermal power plants and four regional electric companies (RECS), according to the US Embassy in Almaty. The Kazakh government quoted a starting price for each tender, as well as, a participation fee for entering the bidding, the number of shares available, and the minimum investment pledge required for the tender.

Enterprise Location Price Fee Shares Pledge

(by region) (apprx.US$) (apprx.US$) (%) (apprx.US$)

Aktyubinsk Thermal Electric Power Aktyubinsk 186.7 mln 133,000 100 20 mln

Thermal Electric Power Plant No.6 Kzyl-Orda 2.62 bln 133,000 100 6.7 mln

Rudny Thermal Electric Power Plant Kostanai 26.5 mln 507,000 -- 114 mln

Aktyubinsk REC Aktyubinsk 100.3 mln 133,000 51 132.89 mln

Kokshetau REC North 25 mln 133,000 51 40 mln

Kzyl-Orda REC Kzyl-Orda 95.25 mln 133,000 51 89.533 mln

North-Kazakstan REC North 733 mln 400,000 51 33.3 mln

Source: US Embassy in Almaty

Contact: Kazakh Ministry of Finance Privatization Department;

US Commercial Service at the US Embassy in Almaty.

Today's News

Politics

TAMRAZ Escape from Tbilisi?

Roger TAMRAZ, the focus of investigations related to campaign donations made to the Clinton Administration, appears close to release by the Georgian Ministry of Internal Affairs (MVD) according to INTERCON sources. Georgian authorities detained TAMRAZ in connection with an Interpol arrest warrant on Friday. TAMRAZ had been sought by Lebanese authorities since 1989 on charges of embezzling $200 million from a collapsed Beirut bank he once headed.

INTERCON sources indicate that TAMRAZ will most likely be released today because Lebanese authorities have failed to present the necessary original legal documents needed to extradite him. According to Georgian law, an individual can only be detained for 72 hours without pressing charges. After 72 hours, Georgian authorities will have no grounds to continue holding TAMRAZ and he will be released.

At the time of arrest, Georgian President Eduard SHEVARDNADZE was not informed of the action taken by the MVD. While on a business trip in

Georgia, TAMRAZ was reportedly traveling with the son of a ranking Georgian security official to promote his pipeline project. The action taken by the MVD suggests a political struggle between the MVD and Georgian security forces. Further, INTERCON sources indicate that this move was, in part, prompted by pressure from Lukoil officials. TAMRAZ's various projects to transport oil from the Caspian Sea are not looked upon favorably by Lukoil.

The whole incident has led to speculation that a change in key personnel in these ministries is under review. Georgia, while acting according to international legal requests, will continue to abide by Georgian legal requirements and expel TAMRAZ.

President Aliyev Meets with Mayor Luzhkov

Azerbaijani President Geidar ALIYEV met with Mayor Yuri LUZHKOV in Baku on Friday, June 13th, to discuss economic and cultural ties between Azerbaijan and the Russian capital, Itar-Tass reported. During the visit, five agreements on direct cooperation were signed. The agreements call for greater cooperation in the areas of trade, economy, science, technology, culture, education and health care.

President ALIYEV said that the agreements are important for his country in deepening multifaceted

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relations with Russia, including Moscow.

After a closed door meeting with President ALIYEV, Mayor LUZHKOV commented that new projects, such as a Azerbaijani-Moscow oil consortium, were also discussed. Moscow requires ten million tons of oil per year and it is a profitable market for Azerbaijan.

Economy

Ruble = 5,758.5/$1.00 (NY rate)

Ruble = 5,782/$1.00 (CB rate)

Ruble = 5,761|5,803/$1.00 (buy|sell rates)

Moldova To Privatize Wine Industry

In an effort to promote foreign investment in Moldova's wine-making industry, the Moldovan parliament has prepared for final approval, a program to privatize its wine distilleries. The program has been expanded to include wine-making and vine-growing reports Itar-Tass. Without foreign investment, government officials do not expect the industry to last ten years.

The industry is vital to Moldova because while it occupies only eight percent of the arable land, it accounts for one third of budget revenues. The export of wine is also a major source of hard currency for Moldova.

According to statistics of the National Institute of Viniculture and Wine-making of Moldova, the vineyards' area was reduced by 80,000 hectares (35 percent) over the past ten years. The volume of grapes has also decreased two and a half times. Current prospects are not good either as vines are being uprooted faster than they are being replaced. To begin restoration of the industry, the privatization program calls for about 1.5 million dollars of investment just to restore the damaged vine plantations.

During this crisis, Moldovan bottlers have taken to bottling wines from Eastern Europe. This has led to fears that consumers will confuse the premium wines

of Moldova with lesser quality wines only bottled in Moldova. Government and industry officials are especially concerned with tarnishing their image in the former Soviet Union, its main export market.

Gazprom Pays Taxes In Full

In a Gazprom report, later confirmed by the Russian government today, the company stated it had paid all its taxes to the government, reports Itar-Tass. "In accordance with an agreement, reached by the Russian government and the Russian stock company Gazprom, despite difficulties, connected with the overall situation with non-payments, all the current payments are being made by Gazprom in full amount in accordance with the tax legislation of the Russian Federation," stated the Culture and Information Department of the Russian government.

Gazprom, the largest taxpayer in Russia, accounts for 25 percent of all the federal tax revenues.

Ukraine Projects Economic Growth for 1997

During his visit to Canada last week, Ukrainian Prime Minister Pavlo LAZARENKO predicted economic improvement in Ukraine over the next year, reports Reuters. LAZARENKO stated that gross domestic product (GDP) is expected to grow in 1997 by approximately one percent. In 1996, GDP fell 10.5 percent. He also commented that inflation in 1997 would not exceed 11 or 12 percent.

Since declaring independence in December 1991, trade between Ukraine and Canada has grown. Canadian exports to Ukraine total about $27.4 million, an increase of 26 percent since 1993.

The pace of foreign investment in Ukraine has been slow with corruption often cited as the largest impediment. When confronted with the issue of corruption, LAZARENKO said the problem was exaggerated by his political opponents in attempt to discredit his government before the next elections. Elections are scheduled to be held in nine months.

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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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.

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