DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 908,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, July 11, 1997

agreement on terms for the transit of oil, according to an earlier arrangement, is to be signed by a representative of the Russian Fuel and Energy Ministry, the director of the Azeri state oil company SOCAR, and the president of the Chechen oil company YUNKO.

YUNKO president Khozh-Ahmed Yarikhanov, as well as Russian Security Council deputy secretaries Boris Berezovsky and Boris Agapov, are also due to leave Moscow for Baku later in the day.

Also today Russian and Chechen officials signed an agreement that allows the Chechen central bank to perform operations through the Russian Central Bank. The accord also allows Chechen banks to open branches abroad and foreign banks to open branches in Chechnya. The Chechen side also brought to Moscow the customs agreement with Chechen President Aslan MASKHADOV's signature on it. Russian Prime Minister Viktor Chernomyrdin signed the agreement earlier.

Basayev Resigns as Chechen Deputy Premier

· Former Chechen field commander Shamil BASAYEV announced Thursday that he was resigning of his own accord from his post as Chechnya's Deputy Prime Minister, without stating a reason for leaving, according to Interfax. BASAYEV, a failed Chechen presidential candidate, was appointed in April.

BASAYEV is infamous for leading a raid on the Russian town of Budyennovsk in

Russian Federation

Politics

Ex-Vice Fin. Min. Eyed in Corruption Scandal

· Deputy Prosecutor General Mikhail KATYSHEV has filed charges against former Deputy Finance Minister Andrei Vavilov, alleging that he covered up a fraudulent deal involving $237 million in government money, reported Russian independent television NTV today. NTV said that VAVILOV authorized the Finance Ministry transfer of about $230 million in state bonds to Russian aircraft company MAPO MiG for the export of MiG jet fighters to India.

The funds were provided as a government foreign currency loan, but the cash never made it to the company's account at Unikombank, and no planes were delivered to India, it said.

Central Bank chairman Sergei Dubinin reportedly informed Prime Minister Viktor Chernomyrdin, who ordered an investigation into the whereabouts of the money.

Last week, Dubinin said that audits by the Central Bank revealed that two commercial banks had essentially cheated the government out of 400 million rubles and that he had asked the Prosecutor's Office to investigate. Russian media reports following the statement suggested that MFK bank and its president, VAVILOV, was one of these banks. VAVILOV lost his position as head of MFK in the recent merger between MFK and Renaissance Capital bank.

Nemtsov to Baku to Sign Oil Transit Deal

· Russian First Deputy Prime Minister/Fuel and Energy Minister Boris Nemtsov flies to Baku today to sign an agreement on the transit of Caspian oil across Russia, via Chechnya, Nemtsov's press secretary Andrei Pershin told Itar-Tass. A trilateral

Today's News Highlights

Russia

Motorola Moscow Manager Killed

Chernomyrdin Declares Income

Communists Plan Rally

Yeltsin Blasts Factory Managers

Russian Bank to Sell Gold

SUN Brewing Earnings Up

South Caucasus & Central Asia

Gulf Cargo Service to CIS

Chevron Sends OIl to China

AIPC Finds Oil in Kazakhstan

Politics-Economics-Business

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Friday

July 11, 1997

Intercon's Daily

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

Ruble = 5,784/$1.00 (CB rate)

Ruble = 5,773|5,795/$1.00 (buy|sell rates)

this year and values at 112 million rubles (about $19,000).

Chernomyrdin told Itar-Tass that he owns neither securities nor real estate abroad. The Russian press has alleged that CHERNOMYRDIN owns substantial stock in Russian gas monopoly Gazprom, which he headed before joining the Russian government in 1992.

Communists Plans Huge March & Rally

· Russia's radical communists are planning a huge political rally in Moscow in mid-July to demand the government's resignation, reported Itar-Tass on Thursday. Viktor Anpilov, who heads the Russian Workers' Party, and Stanislav Terekhov of the Officers' Union said they expect up to 200,000 people to take part in a march due to start from the central Russian cities of Tula and Ryazan on July 12. According to the rally organizers, the two columns of protesters are to merge near the Butovo district in suburban Moscow on July 17.

Rallies would be staged in Moscow on July 18, 19, and 21, said Anpilov, adding that the protesters will focus on such issues as the protection of Vladimir Lenin from burial and NATO's eastward expansion.

The leaflets distributed among the marchers call them to come out for "the right to work and wages" and "against thieves and traitors—Chubaises, Nemtsovs, and Urinsons."

Economy

Yeltsin Blasts Factory Managers

· In a radio address to the nation today, Russian President Boris YELTSIN blamed incompetent and corrupt company directors for contributing to the country's economic crisis. "Unfortunately there are many directors who have adapted to the market in a crafty way, turning the factory into their own feeding trough," said the president. "They understand the market as the right to uncontrolled pumping of the factory's profits into their own fake companies, including those abroad."

YELTSIN said that 80 percent of overdue wages were owed by inefficient enterprises, not by the state. He urged workers and shareholders to oust bad directors and promised that the government

Feb Mar Apr May Jun Jul

June 1995, taking 1,000 people hostage in a local hospital. Some 100 people were killed and BASAYEV escaped back to Chechnya.

On Thursday, Itar-Tass also reported that Chechen Security Service head Abu MOVSAYEV has resigned "for family reasons," but today MOVSAYEV denied that he had stepped down.

Motorola Moscow Manager Murdered

· A senior manager at the Russian office of US Motorola has been killed in Moscow, reported United Press International (UPI) on Thursday, citing local television reports. According to police, Michael Moiseev, Motorola's country manager in charge of paging systems, was shot dead in a contract killing. Moiseev was reportedly walking toward his car when a man fired at him three times.

Moiseev was believed to have been approached by representatives of a criminal group which controls several paging services in Moscow, said UPI.

Chernomyrdin Declares Modest Income

· Russian Prime Minister Viktor Chernomyrdin declared today that his 1996 income totaled about 46 million rubles ($8,000) and he currently has assets worth about 268 million rubles ($46,000), reported Reuters. Chernomyrdin told the State Tax Inspectorate that he and his wife own a plot of land of 1,483 square meters in the Moscow region and a house with total floor space of 315 square meters.

He also owns a Chevrolet Blazer which he bought

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Friday

July 11, 1997

Intercon's Daily

would also work to purge enterprises of corrupt, Soviet-style managers.

YELTSIN also said that he had instructed First Deputy Prime Minister Boris Nemtsov to draft a state program to send 5,000 top managers and 25,000-30,000 middle managers every year for training in the US, Britain, France, Germany, Japan, and Italy.

In a manifestation of YELTSIN's plans, two long-time directors of regional electric utility companies were dismissed this week, reported today's Financial Times. The old-style managers of "energos" in eastern Siberia's Krasnoyarsk Krai and St. Petersburg were removed this week and new directors will be appointed next month at special shareholders' meetings. FT cited analysts as saying that the two regional utilities were among the worst managed in the country.

In addition, criminal proceedings have been started against Krasnoyarskenergo director Vladimir Ivannikov, who is charged with improper transactions with the company's bonds and shares.

The dismissals follow a shakeup of Moscow executives of electricity monopoly Unified Energy Systems (UES), orchestrated by newly-appointed UES president Boris BREVNOV. Two-thirds of the company's old board of directors has been removed, suggesting successful maneuvering by BREVNOV who is charged with overhauling the huge company. BREVNOV has been applauded for his personnel changes by shareholders and analysts and further changes can be expected.

Krasnoyarsk Aluminum Head May Be Ousted

· The board of directors of the Russia's Krasnoyarsk aluminum plant KrAZ, the country's second biggest aluminum smelter, met today to decide whether to fire long-time plant director KOLPAKOV, reported Russian independent television NTV. The seven-member board has accused KOLPAKOV of incompetence. A majority of four votes is needed to dismiss him.

Protest Strikes in Siberia's Kemerovo

· Some 2,000 public sector workers held a demonstration in Siberia's Kemerovo Oblast today, to protest poor living standards and demand the

resignation of President Boris YELTSIN and his government, reported Dow Jones. Demonstrators included coal miners, teachers, medical workers, and other workers, some of whom haven't been paid for six month, but the turnout was reportedly much smaller than expected.

Business

Russian Bank Starts Selling Gold

· Russian commercial bank Rossiisky Kredit on Thursday began sales of gold ingot bars to private buyers, reported Prime-Tass. The sales are possible as a result of Russian government decision in early June allowing commercial banks to sell gold ingots to Russian citizens.

Three other Russian banks—Inkombank, SBS-Agro bank, and Gold Platinum Bank, are reportedly also preparing to sell gold.

Rossiisky Kredit precious metals department chief Pavel Khoroshev predicted that the banks could sell a total of 500 kilograms of gold within three months. Buying gold is seen as a way for Russian citizens to protect their savings from inflation.

Sun Earnings Up, Adding Czech Brand

· Russia's largest brewer SUN Brewing Ltd. on Thursday reported that earning were up sharply for 1996 and for the first quarter of 1997, said a SUN press release. In 1996, the company earned $3.2 million ($0.26 per share), compared with earnings of $370,000 ($0.03 per share) in 1995. Revenues rose to $187.4 million, from $108.6 million in 1995.

For the three months ended March 31, 1997, the company reported net income of $2.8 million ($0.20 per share) on revenues of $50.2 million, compared with a loss of $132,000 ($0.01 per share) on revenues of $36.4 million in the first quarter of 1996.

"Our success is evidence of the tremendous demand for popularly priced, Western-quality goods in the former Soviet Union," said SUN Brewing's chief executive Max Asgari. "We have grown enormously since 1994, when sales were just $43 million and we experienced a loss of $6.8 million."

The company said that during the year bottled beer increased from 70 percent to 80 percent of total

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Friday

July 11, 1997

Intercon's Daily

sales, and that total capacity stood at 3.3 million hectoliters at the end of 1996. After the completion of two acquisitions in 1997, the company said capacity will increase to about 4.5 million hectoliters.

SUN Brewing Ltd., established in 1993, brews and markets Viking, one of the leading beer brands in Russia. The company is audited to US GAAP, led by a Western team trained in modern brewing production techniques, and marketing, and managed locally by Russian plant managers.

SUN Brewing also announced that the company and its subsidiary, Star Distribution Co., have signed a license agreement with Pilsner Urquell International which gives SUN the exclusive right to brew the Czech beer at the Saransk Brewing Co. in Russia's Republic of Mordovia, in which SUN has a controlling interest. Star also received a non-exclusive right to sell and distribute the product in Russia.

In another development, SUN said it resolved a long-running dispute with management of the Kursk Brewing Co., in which SUN currently owns a stake, and the Kursk Oblast government. Under a new charter for Kursk, SUN will own 60.61 percent, the government 36.73 percent, and employees the remainder. SUN said it plans to increase its holdings in the brewery to 75 percent in coming months.

Chevron Sending Kazakh Oil to China

· US Chevron will soon make it first test delivery of oil produced at Kazakhstan's Tengiz oilfield to China by rail, reported today's Financial Times. Chevron is seeking a way to increase exports of Tengiz oil despite a shortage of export outlets to world markets and is already sending some oil by rail to export terminals on the Baltic Sea. The bulk of its exports will eventually be sent by a pipeline, linking Tengiz with Russia's port of Novorossiisk, being build by the Caspian Pipeline Consortium.

Western China, however, represents a huge potential market, with demand expected to support exports of one million tons of Kazakh oil a year. Chevron is also studying the feasibility of establishing an oil storage facility on the Kazakh-Chinese border to overcome a shortage of rail cars to carry the oil.

AIPC Project Oil Estimate Revised Upwards

· US American International Petroleum Corp. announced on Thursday that estimates of potential recoverable reserves for its license area in the Kazakh section of the Caspian Sea have been revised upwards to 1.1 billion barrels of oil, said a company press release. The license area is located in western Kazakhstan, about 125 miles southeast of Chevron's huge operation at the Tengiz oilfield and borders a field operated by France's Elf Aquitaine in the Azeri sector of the Caspian.

American International Petroleum has tested seven structures in the 4.7 million acre concession, and nine additional structures have been identified in the area, which have not yet been evaluated but represent significant further reserves.

American International Petroleum Corp. is engaged in oil and natural gas exploration in Kazakhstan and refining in Louisiana. According to Reuters, the company sold its Latin American and African operations to buy a 70 percent interest in the Caspian concession. It notes that AIPC is a relatively small operator in the burgeoning Caspian region.

South Caucasus & Central Asia

Gulf Cargo Service to Focus on Baku

· Dubai-based Gulf Agency Co. (GAC) will start cargo services to the CIS on August 1 and hopes to attract significant new business from oil industry-related companies operating in Azerbaijan, reported Compass news on Thursday. The coming boom in Caspian oil output is expected to result in more trade from Dubai to the CIS via Iran in all trade sectors.

The new service will ship exports and re-exports from the Far East, Europe, and the US into the CIS via Dubai. It will utilize GAC's warehouse in Jabal Ali Free Zone.

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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