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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, June 2, 1997

Russian Federation


Collins Named US Ambassador to Russia

· The White House on Friday announced that it has recommended James Collins as the new US Ambassador to Russia. The top diplomatic post in Moscow has been vacant since November 1996.

Collins is currently the Ambassador-at-Large and Special Adviser to the Secretary of State for the Newly Independent States (NIS). The White House announced last week that it intended to nominate Stephen SESTANOVICH of the Carnegie Endowment for International Peace in Washington to take over these posts.

Collins, a career member of the Senior Foreign Service, has served two tours in Moscow and stints in Jordan and Turkey. He also held management positions in the Department of State in Washington and worked extensively on Russian/Soviet and on Middle East affairs. Before joining the Department of State, Collins taught Russian and European History at the US Naval Academy. He holds a cum laude degree from Harvard University (1961) and an M.A. from Indiana University (1964), and conducted research as an exchange fellow at Moscow University in 1965.

Chubais Cuts off Harvard

· Russian First Deputy Prime Minister Anatoly CHUBAIS has criticized a US government investigation into two Harvard University advisors to Russia, but at the same time announced that Moscow will stop working with the University, reported today's Wall Street Journal. "The investigation…against the Harvard researchers has some kind of political roots…produced by those in the United States who do not support the ideas of the Russian radical

reforms. That's why I decided that it's not convenient for me to have business with this kind of institution," CHUBAIS is quoted as saying. He also said that it appeared that the men had been judged guilty before the completion of the investigation.

The US Agency for International Development (USAID) announced in mid-May that it was suspending $14 million in funding to the Harvard Institute for International Development because an investigation had determined that Harvard advisers Jonathan HAY and Andrei SHLEIFER had conflicts of interest and had misused their positions for personal gain. The two were subsequently fired from the Institute.

Since 1992, USAID has disbursed $53 million to the Institute to help reform Russia's legal system and develop its securities markets, but any further funding through Harvard is now in doubt.

CHUBAIS sent a letter to USAID asking it to end several ongoing programs in Russia run by the Institute, saying that the programs "do not meet the interest" of Russia, according to the WSJ. Extracting the Institute from long-term US government programs in Russia wil likely prove problematic and USAID has reportedly asked CHUBAIS for a meeting to discuss making the change gradually.

In addition, Russia's Federal Securities Commission chairman Dmitri VASILIYEV recently told the World Bank that he was no longer considering a bid by the Institute to manage an $89 million bank loan

Today's News Highlights


New Political Party Formed

Soldier Kills 11 Comrades

Yeltsin Declares His Income

Brevnov Named UES CEO

Lockheed Martin in Russia JV

Amax Gold Buys Russia Mine Co

Russian Railway Web Site

Polaroid Names Russia Director

Lukoil & KamAZ to Cooperate

UK Co. Plans Russia Hotels




June 2, 1997

Intercon's Daily

designed to assist Russia in developing its capital markets, said the WSJ report.

The USAID investigation and Moscow's stance on it are a huge blow to the prestige and pocketbook of the Harvard Institute, which is headed by Jeffrey SACHS. SACHS was considered a key advisor to Russia in the early stages of economic reform, when CHUBAIS was privatization minister, but relations between the two have disintegrated during the last few years.

New "Progressive" Political Party Formed

· The leaders of the three Russian political parties—Our Home is Russia, Reforms-New Course, and the Russian All-People's Union on Friday signed an agreement on establishing a new party, the Union of Progressive Forces, reported Xinhua. Under the agreement, the new party will be a joint organization aimed at pushing democratic reform policies. Its main task will be to name candidates to compete in federal and regional elections.

The party's top body will be a coordinating committee consisting of representatives of the three groups. Russian Prime Minister Viktor Chernomyrdin will be the chairman of the committee.

Chernomyrdin, who is also the leader of Our Home is Russia, said at the signing ceremony that the formation of the new party was an important event in Russian political life, and a crucial step in the unifying process of Russian political forces.

Serviceman Kills 11 Comrades in Abkhazia

· A Russian soldier serving on the Russian peacekeeping force in Georgia's separatist region of Abkhazia gunned down 10 his fellow soldiers and committed suicide on Sunday, in the latest incident of violence within the Russian military. Sergeant Artur Vaganov opened fire on his fellow servicemen as they slept, killing ten and heavily wounding three, according to Itar-Tass.

In a similar incident, a Russian soldier stationed in the Far East killed an unarmed lieutenant and five soldiers with an assault rifle and fled his unit on Friday, according to Reuters.

Violence and disciplinary infractions have become frequent within the Russian military in recent years.

The Week's Happenings

¨ Russian Prime Minister Viktor Chernomyrdin began a three-week vacation on June 1. The premier will spend three days in his home region of Orenburg and then will head to the Black Sea coastal town of Sochi.

¨ Ukrainian President Leonid Kuchma began a one-day visit to Romania on June 2 to sign a treaty on friendship, cooperation, and good-neighborliness. The document was initialed by the two countries' foreign ministers in Kiev on May 3.

¨ Uzbek President Islam Karimov arrived in Kazakhstan on June 2 for a two-day official visit. A large package of bilateral agreements is expected to be signed during the visit.

¨ Cuban Trade Minister Ricardo Cabrisas Ruiz arrives in Moscow on June 2 to attend the first session of the Russo-Cuban intergovernmental commission for trade, economic, scientific, and technical cooperation. The meeting will focus on deliveries of Cuban sugar in exchange for Russian oil, the construction of a nuclear power station at Juragua, and Havana debt to Moscow

¨ On June 2_5, Turkish President Suleyman Demirel will pay state visits to Estonia, Lithuania, and Latvia to enhance Turkey's relations with the three Baltic states. During his three-nation tour, DEMIREL will discuss with his counterparts bilateral ties and exchange views over both international and regional issues of common concern. Turkey is also expected to sign a series of cooperation agreements in the fields of trade, health, security, and transport with the three Baltic countries.

¨ A meeting of the Council of the Russian State Duma will be held on June 3 to discuss a rough plan of the legislative activity of the house. The Duma will hold its first plenary meeting of the month on June 4. Among the important draft laws to be discussed are the tax code and bills related to the budget.

¨ on June 4, Russian President Boris Yeltsin will meet with the heads of Russia's republics.

When you need to know it as it happens




June 2, 1997

Intercon's Daily

Cash shortages have meant that many soldiers go without pay, are poorly fed, and lack basic equipment, and reports of violence, abuse, and brutal hazing practices in the ranks are widespread.


Ruble = 5,769/$1.00 (NY rate)

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

Ruble = 5,756|5,792/$1.00 (buy|sell rates)

Grain Crop Forecast at 70 Mln Tons

· The Russian Agriculture Ministry estimated today that this year's grain harvest will total no less than 70 millions tons, reported Itar-Tass. According to the ministry, low temperatures and continuous rains have slowed the pace of the spring sowing campaign, but in general, the situation is better than last year.

Yeltsin Declares His Income

· In compliance with a new government anti-corruption initiative, Russian President Boris Yeltsin has submitted an income and property declaration, which was published in Rossiiskiye Vesti on Saturday. The president makes $43,000 a year, owns real estate worth $206,700, and drives a 1995 BMW worth $12,500, according to the declaration.

The president's income includes his salary, proceeds from book sales, and the interest from a savings account. He owns a dacha outside of Moscow, but rents his 3,500-square-foot apartment in the city, which he shares with five family members. He owns no securities.

Brevnov Wins Top Post at UES

· The board of directors of Russian electricity monopoly Unified Energy Systems (UES) elected the 29-year-old Boris Brevnov as chief executive at its annual meeting on Friday, reported today's Financial Times. Brevnov who is a close ally of First Deputy Prime Minister Boris NEMTSOV, was the company's First Vice-President before the election. The vote is a victory for the Russian government. BREVNOV will be in charge of pushing through a government restructuring plan for UES.

UES' former chief executive, Anatoly Dyakov, was given the symbolic title of "honorary president" and appointed chairman of the board of directors.

DYAKOV told the meeting that UES shares more than tripled in value in 1996 and their average monthly trading constituted some 10 percent of the overall volume on the Russian stock market, reported Interfax. UES shares are reportedly among the most liquid on the Russian market with over 150 Russian and foreign investment companies trading in them. DYAKOV said that the number of individuals owning UES stock dropped by six percent in 1996, while the number of corporate owners grew by 45 percent to about 700.


Lockheed Martin in Russia JV

· Lockheed Martin International, a unit of US Lockheed Martin, and Russia's Intersputnik today agreed to form a joint venture to provide worldwide communication services via satellite, reported the Associated Press (AP). Lockheed Martin will be the majority shareholder in the venture, called Lockheed Martin Intersputnik Ltd., which will be based in London and have a marketing office in Moscow.

Intersputnik, a former Soviet space agency, holds the rights to prime but unused positions for satellites in Earth orbit. Russian and 21 other member countries of the Intersputnik International Organization of Space Communications hold 15 high-altitude orbital positions, which will be contributed to the venture. Intersputnik will also take the lead in marketing and sales of the new services.

Initially, Lockheed Martin Intersputnik will provide broadcast telecommunications to Eastern Europe, Africa, parts of Asia, and the former Soviet Union. At a later stage, the ventures plans to expand into direct video, audio, and mobile services worldwide.

The first of four planned satellites—a Lockheed Martin A2100 now being built in Sunnyvale, Calif.—will be launched on a Russian-built Proton rocket in late 1998 and positioned over the Ural Mountains. After three more satellites are launched, one in 1999 and two in 2000, the venture will increase its reach, with projected annual revenues of $300-500 million by the year 2001.

Amax Gold Completes Acquisition

· Denver, Colo.-based Amax Gold Inc. announced on Friday that it has completed the acquisition of a

When you need to know it as it happens




June 2, 1997

Intercon's Daily

subsidiary of Cyprus Amax Minerals Co. that owns 50 percent of the Kubaka gold mine in the Russian Far East, said a company press release. The other 50 percent is owned by five Russian partners. Kubaka represents the first US mining venture to produce minerals successfully in Russia since the turn of the century.

The Kubaka mine, which is located about 600 km northeast of the port city of Magadan, poured its first gold on February 20, 1997, and is expected to be completed at a capital cost of about $228 million. At full production, the mine is expected to produce about 150,000 ounces a year over its seven-year life for Amax Gold's account at a cash cost of about $185 per ounce.

Russian Designer Creating Railway Web Site

· Russia's Digital Design company has begun work on a corporate Web site for the Oktyabrskaya Railway, reported Newsbytes. Plans call for the new Web site to contain complete timetables and associated information regarding goods and passenger traffic. Plans also call for the Web site to host account details for corporate clients, allowing them access to their accounts on-line. The new Web site should be on-line by the first quarter of 1998.

Digital Design is one of a few Russian companies which have considerable experience in designing large industrial Internet systems. For the last two years, which have been characterized by an intensive growth of the Internet in Russia, the company's specialists have successfully developed and installed various industrial systems built on Internet technologies.

After three years of development, Digital Design completed in 1996 the first corporate system for the Oktyabrskaya Railway, which took three years to develop. The railway is the oldest in Russia.

Polaroid Names Russia Director

· Cambridge, Mass.-based Polaroid Corp. today

announced the appointment of Arthur Braunstein as general manager of its business in Russia, said a company press release. For the past two years, Braunstein, 45, has been managing director in charge of AT&T's business in the Commonwealth of Independent States (CIS). He joined AT&T in 1990 after selling Communication and Language Line Inc., a company he co-founded in 1986, to AT&T.

Lukoil and KamAZ to Cooperate

· Russian truckmaker KamAZ and oil conglomerate Lukoil on Sunday signed an investment agreement on the purchase of Kamaz-6520 large trucks for oil workers, reported Itar-Tass. The trucks have been tested on the northern roads of the oil-rich Tyumen region. KamAZ designers are also upgrading the Kamaz-6522 trucks to be tested in the fall.

Lukoil vice-president Ravil Maganov told Itar-Tass there is good chance that the new Russian vehicles will fully replace foreign-made trucks used by oil workers. KamAZ also plans to launch production of trucks equipped with oil extracting equipment.

Lukoil has developed a new motor oil that is expected to increase the service life of Kamaz trucks by 10-30 percent. The oil company plans to open gasoline stations for Kamaz trucks at over 250 KamAZ auto service centers throughout the former Soviet Union.

UK Company Plans Russia Hotels

· RF Hotels, the UK hotel management company owned by Sir Rocco FORTE, plans to run a new chain of four star hotels in Russia, reported today's Financial Times.

The first hotel will be built in the central Russian city of Nizhny Novgorod. The 150-bedroom hotel will be owned by Spring Investments, a Moscow-registered company in which the FORTE family has a stake along with the Moscow-based Commonwealth Property Investors (CPI) of the US and Sabre Development Group, owned by private property developers.

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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