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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, July 1, 1997

reportedly had an office in the Kremlin for months, but the official appointment "removes the whole ambiguity" surrounding her role, she told Russian independent television NTV. She described her position as that of a common sense adviser to the president. "There are unpleasant things that it is easy only for me to tell him. I can do it with tact," she said on NTV.

New Information on Yerevangate

· The Russian press has published some new, if somewhat contradictory, revelations on the illegal shipments of Russian arms to Armenia that occurred during 1994-96. In February, then-Russian Defense Minister Igor RODIONOV revealed that his ministry had delivered $1 billion worth of weapons to Armenia gratis. Intercon reported on April 14 that the Kremlin insisted that neither President Boris YELTSIN nor the Russian government authorized the weapons shipments to Armenia.

According to an article in today's Izvestia, however, the Russian arms shipments to Armenia were sanctioned by Prime Minister Viktor CHERNOMYRDIN and were not free of charge, said RFE/RL Newsline.

Izvestia believes that the cash payment received from Yerevan for the weapons was channeled into Russian election campaigns. The newspaper suggests that the money benefited many State Duma deputies and therefore all legislative factions have worked to curtail the official investigation into the shipments.

Nezavisimaya Gazeta reported

Russian Federation

Politics

Chernomyrdin Wants Duma Out of Recess

· Russian Prime Minister Viktor Chernomyrdin met with State Duma speaker Gennady SeleznyEv today to urge him to call the parliament out of its summer recess for an extraordinary meeting, reported Itar-Tass. Chernomyrdin wants the Duma to continue debate on the 1997 budget sequestration law and welfare benefits bill. Deputies are not due to return from recess until August 25.

SeleznyEv told reporters that the Duma would only interrupt the summer recess, if the government presented the laws after revising them "with heed for the majority opinion of deputies."

According to Russian television, the two men reached no agreement at the meeting.

Seleznyev Blasts Yeltsin on Daughter Adviser

· Russian State Duma speaker Gennady Seleznyev today criticized President Boris Yeltsin for appointing his daughter, Tatyana DYACHENKO, as a presidential adviser, calling the move illegal. The speaker said that Russia's civil service law prohibits the appointment of close relatives to important government posts.

Nepotism was a common practice during Soviet times, but it has been largely absent in the higher echelons of power in independent Russia until recently. A few months ago, YELTSIN appointed his son-in-law Valery OKULOV, the husband of his elder daughter, to head the state carrier Aeroflot.

DYACHENKO is disliked by the Russian opposition for her liberalism and her close relationship with First Deputy Prime Minister Anatoly CHUBAIS. She has

Today's News Highlights

Russia

Military Commanders Named

Strikers Block Trans-Siberian

Govt. Not Paying for Gold

ABB Gets New Russia Contract

Russian Cos. in BusinessWeek

Continental to Fly to Moscow

European Republics

Havel Visiting Ukraine

New US Ambassador to Belarus

Latvian Govt in Trouble

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Tuesday

July 1, 1997

Intercon's Daily

on June 27 that it has documents showing that arms deliveries to Armenia from September 1994-February 1996 were the result of directives from Russia's Armed Forces General Staff which were signed by Chief of Staff Mikhail Kolesnikov. KOLESNIKOV served as Chief of Staff during the entire period of the arms shipments, but was removed in October 1996.

Meanwhile, Azeri President Geidar Aliyev will arrive in Moscow on Wednesday for an official visit. ALIYEV told the Russian Ambassador to Azerbaijan Aleksandr Blokhin that he expects Russian officials to give him a clear answer about the probe into Russian arms exports to Armenia, said Itar-Tass.

Russian Envoy to Armenia in Fatal Accident

· In a bizarre accident, a senior Russian diplomat fell to his death Monday morning while trying to enter his fourth floor Yerevan apartment through an outside window, reported Russian news agencies. Russian Embassy in Yerevan counselor Anatoly Rybalchenko hit the pavement after the rope he had lowered from the roof to climb into his apartment window snapped.

According to Embassy officials, RYBALCHENKO was locked out of his apartment while taking out the garbage and needed to get back in quickly in order to rush to an Embassy meeting.

Rybalchenko, 52, worked at the Russian Embassy in Yerevan since December 1994 and was in charge of economic cooperation between the two countries.

New Military Commanders Named

· Russian President Boris YELTSIN has appointed several new top military commanders as part of a reshuffling of the Defense Ministry begun last month with the dismissal of Defense Minister Igor RODIONOV. Col.-Gen. Vladimir YAKOVLEV was named commander of the Strategic Missile Forces, replacing Igor SERGEYEV who became Defense Minister, reported the Associated Press (AP).

In addition, Lt.-Gen. Vladimir ISAKOV was made a deputy defense minister, Col.-Gen. Grigory KASPEROVICH was named commander of the Siberian Military District, and Gen. Ilya PANIN was appointed chief of the personnel department.

Economy

Ruble = 5,773.5/$1.00 (NY rate)

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

Ruble = 5,768|5,796/$1.00 (buy|sell rates)

Strikers Block Trans-Siberian Railway

· About 300 employees of Russia's far eastern Zvezda nuclear submarine repair plant blocked the Trans-Siberian railway for over two hours today to protest wage arrears, reported Reuters. The workers have not been paid for the past 10 months. The protesters fought police to stop traffic at the Amur Bay station, located about 20 miles north of the Pacific port city of Vladivostok.

The workers ended the protest when President Boris Yeltsin's representative in the Far East, Viktor KONDRATOV, arrived and promised prompt payment of the debt.

Gold Cos. Not Paid for Govt. Deliveries

· Russian gold mining enterprises have mined 20 tons of gold so far this year and supplied this gold to the state, but no money has been remitted from the state budget to pay for it, reported Finansoviye Izvestia. According to Russian Gold Miners' Association Council Chairman Viktor Tarakanovsky, the state currently owes domestic gold mining enterprises a total of 1.3 trillion rubles. In addition to that, he noted, the state owes 300 billion rubles for gold delivered to state coffers in 1996.

Poll of Russian Businessmen

· According to a recent opinion poll of senior managers of Russian small businesses, conducted by the Strategic Analysis and Business Development Institute, 40 percent of managers appraise their current situation as "bad or very bad," reported Friday's Izvestia. Only six percent of the respondents consider their situation to be "good," and the remaining 54 percent described their situation as "satisfactory." Some 84 percent of the respondents complained about excessively high tax rates, and a mere nine percent admitted they are afraid of racketeers.

Business

ABB Receives New Russia Contract

· ABB Lummus Global, a US division of interna

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	Tuesday		July 1, 1997
	Intercon's Daily
	tional engineering company Asea Brown Boveri (ABB), has received an order worth more than $100 million to modernize a petrochemical refinery for Russia's Nizhnekamskneftekhim (NKNK), reported Dow Jones. The contract covers design, engineering, and procurement of a Middle Distillates Hydrotreating Complex, said an ABB press release. NKNK, located in central Russia's Republic of Tatarstan, produces refined petroleum products, chemicals, and petrochemicals, as well as finished consumer products. The company is undertaking a project to reduce the sulfur content of its kerosene and gas oil products in line with environmental standards in Russia and its export markets. The project will be financed in part through a loan guarantee from the US Export-Import Bank under the Oil & Gas Framework Agreement between the governments of Russia and the US, according to ABB. Russia Cos. Make Business Week Rating · US BusinessWeek magazine has for the first time included Russian companies on its list of "The Top 100 Emerging Market Companies," placing four Russian energy and oil firms in the ranking. The list, which is based on data from Morgan Stanley Capital International, gives the number two ranking to Russian gas monopoly Gazprom, with an estimated market value of $42.612 billion. The list names three more Russian companies: electricity monopoly Unified Energy Systems (UES) in 13th place with a market value of $13.668 billion; oil conglomerate Lukoil in 20th place with market value of $10.371 billion; and Siberian oil company Surgutneftegaz in 70th place with a market value of $4.77 billion. Commenting on the rocketing performance of Russian companies, the magazine noted that President Boris Yeltsin's re-election in 1996 reduced political risks and encouraged foreign investors to put their money in the Russian economy. Continental OKed for Service to Moscow · Houston-based Continental Airlines on Monday announced that the US Department of Transportation has granted it route authority for Newark-Moscow service, said a Continental press release. Continental plans to begin non-stop DC_10 service to	Moscow from its New York/Newark hub, effective April 30, 1998. Separately, earlier this year Continental and Aeroflot Russian International Airlines entered into an agreement under which Aeroflot would purchase, market, and sell half of the seats on Continental's flights between Newark and Moscow. The arrangement is subject to approval by both governments. New Russian Capital Flight Figures · Accordance to new estimates by domestic experts, the illegal exports of capital from Russia currently equal $1-2 billion per month, reported Interfax-AiF (No. 25). From $150 billion to $300 billion was smuggled out of Russia since 1991. According to the Interpol Russian bureau, some of this money is being invested in Finland. Specifically, Russians have acquired some 200 pieces of real estate there and about 1,500 companies headed by Russians are currently operating in Finland. IBM to Put Hermitage Online · US IBM has teamed up with the State Hermitage Museum in St. Petersburg, Russia, to put the museum online, reported Newsbytes on Monday. IBM has donated $1.6 million to the project, which will allow the Russian museum to have its own Web site, with visitors being able to view the museum treasures in "as vivid a manner as possible." The Web site is expected to be up and running by fall 1998. Plans call for IBM to provide the services of its research facilities in: Yorktown Heights, New York; Santa Teresa, California; and Haifa, Israel. As part of its contribution, IBM is establishing a digital library, visitor information kiosks, an Internet Web server, and an education and technology center. Newsbytes noted that a specialized Image Creation Studio, which uses patented IBM technology to digitize art objects and protect the images, is included in the grant. European Republics Czech President Havel in Ukraine · Czech President Vaclav Havel arrived in Kiev on Monday for talks with Ukrainian leader Leonid KUCHMA on problems of European security, econo-


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mic cooperation, and European integration. Today, the two countries signed several agreements on the avoidance of double taxation, the prevention of tax evasion, cooperation in nuclear energy and industry, and on combating organized crime, terrorism, and drug trafficking.

Fire at Ukraine Communist Headquarters

· The Ukrainian Communist Party headquarters was set on fire on Monday night, reported Itar-Tass. In a statement issued on Monday, party leaders condemned the arson as a sign of a "reviving witch hunt" and an "act of political pressure," according to the news agency.

Police have launched an investigation and instituted criminal proceedings on charges of arson. Investigators have declined to comment on the incident, but witnesses claim that several empty bottles containing an unknown inflammable substance were found at the scene of the fire.

The damage caused by the fire has been tentatively valued at about 160,000 hryvnia (about $86,000).

State of Moldovan Economy

· The Moldovan government said over the weekend that the country is facing economic difficulties with all economic indices on the decline, reported Xinhua. The country's gross domestic product (GDP) fell by 10 percent during January-May, compared with the same period last year, with industrial output falling 15 percent and agricultural output down by nine percent.

Industrial enterprises in the country are short of funds, materials, and energy supplies and sales are sluggish, it said. However, the production of building materials, leather products, meat, and canned fruits increased during the first five months of this year.

Moldova's trade turnover totaled $610 million during January-May, with imports worth $380 million and exports at $230 million.

US Ambassador to Belarus Named

· US President Bill Clinton on Monday announced his nomination of Daniel V. Speckhard, a career member of the government's Senior Executive Service, to be Ambassador to Belarus.

Speckhard, of Wisconsin, began his federal career in the Presidential Management Intern Program in 1982 and has served in a number of executive agencies, including the State Department.

Since 1993, Speckhard has been a Deputy to the Ambassador-at-Large for the New Independent States (NIS). Over the past four years, he has worked to advance US foreign policy interests on a broad range of political, economic, and security issues involving the NIS.

Two Latvian Ministers Step Down

· The often-shaken Latvian government is in trouble this week after two ministers resigned and another is under investigation for corruption. Latvian Prime Minister Andris SHKELE has warned that if more ministers leave the Cabinet, there could be a political crisis.

Interior Minister Dainis Turlais resigned on Monday after several children fell to their deaths on Saturday in an accident at a firefighters' celebration in Talsi, reported the Baltic News Service (BNS). The children were riding in the basket at the end of a firetruck, when the crane broke killing eight children and injuring 20. SHKELE cut short a holiday in Britain to head the investigation of the incident. Firefighting and Rescue Service head Juris LABIS also resigned.

Today, SHKELE accepted the resignation of Agriculture Minister Roberts DILBA, who quit after the prosecutor's office accused him of corruption for not declaring that he owns shares in two agricultural enterprises, reported Reuters. Transport Minister Vilis KRISHTOPANS is under investigation on similar charges.

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

available for non-profit institutions.

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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