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

Friday, June 27, 1997

New Energy Commission Head Named

· Russian President Boris YELTSIN has named Andrei ZADERNYUK as chairman of the Federal Energy Commission, which is charged with regulating and introducing competition into the energy sector, reported Reuters today. He will replace Yuri KORSUN, who has been made a deputy fuel and energy minister.

Unsurprisingly, the new Energy Commission head hails from Nizhny Novgorod and is an ally and former subordinate of First Deputy Prime Minister/Fuel and Energy Minister Boris NEMTSOV.

The Energy Commission, which was established by First Deputy Prime Minister Anatoly CHUBAIS, is not yet fully operational. The extent of its authority to liberalize tariffs and set transport policies is still being worked out.

Economy

UES to Drop Tariffs for Some Users

· Russian electricity monopoly Unified Energy Systems (UES) will introduce tariff concessions for industrial consumers of electricity who pay in advance, effective July 1, reported Itar-Tass. UES vice president Oleg Britvin told a press conference on Thursday that the new payment system provides for up to 30 percent discounts for corporate buyers who prepay for electricity deliveries. Initially, the new payment model will be adopted only at the federal level.

Russian Federation

Politics

Chernomyrdin Signs Energy Deal in China

· Russia and China today signed billions of dollars worth of trade and energy deals in a push to improve economic ties between the two giant neighbors. Russian Prime Minister Viktor CHERNOMYRDIN, in Beijing for a three-day visit, and his Chinese counterpart LI Peng signed a $7 billion framework agreement to provide China with natural gas from eastern Siberia, as well as a $1.5 million deal to provide northeast China with electricity. The gas deal includes construction of a pipeline from Irkutsk, through Mongolia, to eastern China.

The premiers also agreed to cooperate further on hydropower and nuclear power contracts, improve transportation links, and promote joint ventures.

Governor's Race in Nizhny Novgorod

· On Sunday, an election will be held to choose a governor for Russia's leading reformist region, Nizhny Novgorod Oblast, to replace wunderkind Boris NEMTSOV, who was named First Deputy Prime Minister in March and has taken Moscow by storm.

Out of five candidates for the governor's seat, the main contenders are Nizhny Novgorod Mayor Ivan SKYLAROV and Communist candidate Gennady KHODYREV. NEMTSOV is backing SKYLAROV, while Communist Party leader Gennady ZYUGANOV has campaigned for KHODYREV, who has also attracted the support of Liberal Democratic Party chief Vladimir ZHIRINOVSKY, who is an arch enemy of NEMTSOV.

The outcome of Sunday's gubernatorial vote by the region's 2.8 million people will be a key test of NEMTSOV's reform efforts.

Today's News Highlights

Russia

Ruble Chart

Info. on Inkombank Allegations

New Russia-Japan Air Routes

US-Russian Space Module Deal

European Republics

USDA on NIS Grain Output

Moldova to Reduce Tariffs

South Caucasus & Central Asia

US Co. in Georgia Oil Deal

Tajik Peace Accord Signed

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Friday

June 27, 1997

Intercon's Daily

Ruble = 5,763.5/$1.00 (NY rate)

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

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

to 92 flights per week by the summer of 1998 from the current 80.

Japan was reluctant to allow flights by a Russian carrier from the New Chitose Airport in Sapporo on the grounds that it is adjacent to the Air Self-Defense Force's Chitose base.

Business

US Spacehab in Deal with Energia Rocketmaker

· US SPACEHAB Inc. on Wednesday announced the signing of an agreement with Russia's Rocket Space Forces (RSC) Energia to develop commercial uses of human space flight resources, said a company press release. Spacehab said the two companies will jointly explore the emerging commercial market for the use of space in "for-profit" science and production enterprises.

The Vienna, Virg.-based Spacehab is a maker of habitable space modules. RSC Energia is one of Russia's leading rocket and space enterprises. RSCEnergia is also a participant in the Sea Launch joint venture, led by Seattlebased Boeing, which plans to launch satellites from a mobile sea platform.

The US-Russian initiative will be implemented in three phases. In phase one, existing SPACEHAB and Russian commercial equipment will be installed and operated on Russia space station assets. The resulting services will be available beginning in 1998. Phase two will involve the two companies investing in new capabilities to respond to priority commercial opportunities in emerging markets. These services will be available beginning in 1999. These two initial phases will support the phase three strategic objective to develop and operate fully commercial human space flight facilities in the 21st century.

US-Russia Anti-Piracy Board Planned

· Two officials from the Russian movie industry will arrive in Los Angeles on June 29 to lay the groundwork for the formation of a Russian-American joint anti-piracy board to combat the unauthorized use of intellectual property in Russia, said PRNewswire today. Sergei Solovyev, Director of the upcoming 20th Moscow International Film Festival, and Stas Namin, producer and executive vice president of the Society for Performers' Rights, will hold meetings with industry figures in Hollywood.

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In addition, UES and gas monopoly Gazprom have set up a joint working group to handle the debts of UES subsidiaries for gas deliveries.

More on Allegations Against Inkombank

· Intercon has obtained an official document, signed by S. Belenkov, deputy director of the Russian presidential press service, which confirms that the "Russia's Bulletin," cited in the June 5, 1997 edition of Daily Report on Russia, was not a publication of the presidential administration. According to S. Belenkov, the translation of an article distributed to German and British banks, as well as to other media, was done in such a way as to make "an impression of being an opinion of the Administration of the President of the Russian Federation." The article on Inkombank in "Russia's Bulletin" included allegations of fraud and other illegal activities involving the bank. Belenkov disclaims any connection between the information presented in the article and the presidential press service.

New Russia-Japanese Air Routes

· Japan and Russia today agreed to allow their national carriers to inaugurate trans-Siberian flights to and from Japan's northern city of Sapporo, reported Kyodo news agency, citing Japan's Transport Ministry. The agreement provides for two trans-Siberian flights per week each to Japanese and Russian carriers to and from Sapporo.

As part of the agreement, Japanese carriers will be allowed to expand trans-Siberian services to Europe

When you need to know it as it happens

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Friday

June 27, 1997

Intercon's Daily

The formation of the Russian-American Anti-Piracy Board has official support from Russian President Yeltsin, and Prime Minister ChernomyRdin.

"In the US, besides the government, anti-piracy measures are performed by the MPAA, led by the distinguished Mr. Jack Valenti. But in Russia, there is no such organization and so far we have limited experience in dealing with such issues. But, we want to, and will, deal with this problem. In January 1997, we implemented the law which provides severe punishment for infringements on the rights of rightful creators, both domestic and foreign. It is a formidable task that we have to tackle. A joint Anti Piracy Board is a strong step forward in our campaign," Solovyev is quoted as saying.

Belarus' total grain production is estimated at 5.8 million tons, nearly unchanged from last year, and Moldova output is set at 2.4 million, up from 1.8 million in 1996/97. Both wheat and corn production are forecast to increase from last year when severe summer drought and torrential September rains suppressed yields.

Kazakhstan grain production is estimated at 11.6 million tons, including 8.5 million of wheat. An increase in projected yield is likely to push production above last year's 10.9 million tons despite a 700,000-hectare reduction in total grain area.

In Uzbekistan, early prospects for winter wheat—which comprises over 70 percent of total grain production—are not especially favorable, according to a US agricultural attaché report. Grain production is estimated at 2.8 million tons, not including rice.

Elsewhere in Central Asia, grain output is forecast to match last year's levels. Production is estimated at 0.7 million tons for Turkmenistan, 1.4 million for Kyrgyzstan, and 0.2 million for Tajikistan.

The outlook for the Caucasus countries is roughly the same as last year. Grain production is estimated at 0.6 million tons for Georgia, 0.3 million for Armenia, and 1.0 million for Azerbaijan.

Baltic production is forecast slightly down from last year's three-year high, but projected yields are above the five-year average. Lithuania output is estimated at 2.1 million tons, Latvia at 0.9 million, and Estonia at 0.5 million.

Moldova to Reduce Customs Duties

· The Moldovan parliament on Thursday approved a bill abolishing customs tariffs on imports of mineral fuels, crude oil and its by-products, and a number of other items, reported RFE/RL Newsline. Other import tariffs were reduced from 20 percent to five percent. Cutting tariffs on imported goods is one of the conditions set by the IMF for the release of a $25 million loan.

Moldova is also trying to meet preliminary conditions for receipt of a $100 million structural adjustment loan from the World Bank, according to Reuters. Moldovan Prime Minister Ion CIUBUC signed a memorandum with the World Bank last month outlin

European Republics

USDA on NIS Grain Production

· The US Department of Agriculture (USDA) this week released its assessment of 1997/98 grain production in the former Soviet republics, according to Futures World News (FWN). Total grain production in the 15 former Soviet republics for 1997/98 is estimated at 127.1 million tons, up 7.6 million from last year, it said. The increase is driven chiefly by a projected rise in Ukrainian output: production is forecast to rebound by nearly eight million tons from the low 1996/97 harvest, while production in Russia, Kazakhstan, and Belarus is estimated at roughly last year's levels.

Russia's total grain production is estimated at 65.9 million tons, down from 66.8 million in 1996/97, with estimated wheat output nearly unchanged from last year's 35 million tons. Higher yields are projected to

compensate for a two million hectare decline in total grain area sown.

Ukraine's 1996 grain crop suffered from persistently unfavorable weather and production fell to a 33-year low of 23 million tons. Production for 1997/98 is forecast to rebound to 30.8 million tons. Wheat output is estimated at 17.5 million tons, up 4.0 million from last year. Winter wheat comprises nearly half of Ukraine's total grain area and winter grains benefited from excellent fall establishment conditions for the first time in five years. Corn production is estimated at 3.5 million tons, a 1.6 million ton increase over last year.

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Friday

June 27, 1997

Intercon's Daily

ing five steps to be taken: further privatization, agrarian reforms including land sales, strengthening the framework for public spending and reducing arrears, reforming the pension system and raising the pensionable age, and privatizing the energy sector. When Moldova failed to meet the conditions, a special World Bank meeting on Moldova, set for June 26, was postponed.

Moldovan President Petru LUCINSCHI today appealed to the parliament to speed up reforms and pass the necessary legislation to meet the IMF and World Bank conditions.

South Caucasus & Central Asia

US Oil Co. in Georgia Development Deal

· Houston-based Frontera Resources Corp. on Thursday announced that it has signed a production-sharing contract with Georgian State Oil Co. Saknavtobi for 1.4 million acres of land in the country's Kura Basin, said a company press release. The contract also grants Frontera the exclusive right to construct a petroleum refinery near Tblisi.

The contract was formally executed on June 25 in Tblisi by Georgian Minister of Fuel and Energy David Zubitashvili and Saknavtobi president Revaz Tevzadze.

"Under President Shevardnadze's leadership, the nation has achieved a measure of economic stability and commitment to private enterprise that is at the forefront of the world's new democracies," said Frontera president and CEO Steve C. Nicandros. "This favorable business environment gives Frontera confidence in the future of its Georgian operations."

Frontera's production-sharing contract covers Block 12 in eastern Georgia. The block is along the country's border with Azerbaijan, and on the route of the early oil pipeline that the Azerbaijan International Oil Company (AIOC) is building from the Caspian Sea to the Black Sea.

"For more than a thousand years Georgia was a western terminus of the famous Silk Road of international trade," noted Nicandros. "Today, oil and gas production, transportation, and refining are the critical links in a new Energy Road that begins in the Caspian region and ends on Georgia's Black Sea coast. This transaction uniquely positions our company to share in the blossoming trade along the Energy Road."

Block 12 contains two oil fields with known rehabilitation possibilities, and three other fields that require further study. The existing fields, one of which was discovered as recently as 1963, contain light sweet crude. Significant numbers of undrilled generic structures exist in the block.

Frontera Resources Corp. is a privately held international energy company based in Houston, Texas, with offices in Tblisi, Baku, and Santa Cruz, Bolivia.

Inter-Tajik Peace Accord Signed

· Tajik President Emomali Rakhmonov and Islamic opposition leader Said Abdullo Nuri today signed a peace accord in Moscow, a major step in ending a bloody four-year civil war. The accord comes after months of difficult negotiations, numerous setbacks to the peace process, and the deaths of tens of thousands of Tajiks.

The accord calls for the creation of a 26-member National Commission for Reconciliation, to be chaired by NURI, with membership divided equally between the two sides. The parties have agreed to convene a first meeting of the commission in Moscow before July 7 to discuss a draft law on general amnesty to combatants in Tajikistan's civil war. The draft law will be sent to Tajikistan's parliament for approval.

The agreement calls for RAKHMONOV to remain as the country's president, but 30 percent of government posts must be filled by the opposition. Elections for a new parliament must take place before the end of 1998.

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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