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, July 14, 1997

Russian Federation

Politics

US Albright in Russia, Baltics

· During talks in St. Petersburg on Sunday, Russian Foreign Minister Yevgeny Primakov and US Secretary of State Madeleine ALBRIGHT clashed on the issue of NATO expansion to the Baltics, but agreed to speed up changes to the Conventional Forces in Europe (CFE) treaty.

The two sides agreed to extend the latest round of CFE talks until the end of July and plan to hold further discussions before the end of the month, rather than stopping on July 17 as planned.

PRIMAKOV insisted that "Russia opposes the Baltic countries' admission to NATO," reported Interfax, but ALBRIGHT said all democratic European countries were eligible to join, irrespective of geography.

However, ALBRIGHT traveled to Vilnius on Sunday to meet with Baltic leaders and told them that Washington cannot guarantee that the Baltic states will be invited to join NATO in 1999.

Yeltsin Meets with Finland's President

· Russian President Boris Yeltsin met with his Finnish counterpart Martti Ahtisaari over the weekend in the far northern Russian region of Karelia, where YELTSIN is vacationing. The two visited a Russian bathhouse and beat each other with the traditional birch branches. They discussed NATO's eastward expansion and AHTISAARI rejected a Russian proposal for the two countries to create a joint border defense.

Reformer Wins Governorship in Nizhny Nov.

· The citizens of central Russia's Nizhny Novgorod Oblast expressed their support for the reform pro

cess by electing Ivan SkYlarov as the region's new governor in Sunday's runoff election. SKYLAROV, who was supported by his predecessor Boris Nemtsov, took over 52 percent of the vote to defeat communist rival Gennady Khodyrev.

The political opposition campaigned strongly for KHODYREV who ran on an anti-reform platform, but he received only 42 percent of the vote. The gubernatorial runoff in Nizhny Novgorod, which is considered a testing ground of economic reforms, is seem as a victory for now First Deputy Prime Minister NEMTSOV and his reform efforts both in the region and the country as a whole.

The central government didn't fare so well, however, in Sunday's mayoral runoff in Samara. Georgy LIMANSKY, the deputy head of the regional parliament and head of the regional branch of Aleksandr LEBED's Russian People's Republican Party, won the election with more than 54 percent of the vote. The government-backed candidate, deputy mayor Anatoly AFANASYEV, received 38 percent. Former Mayor Oleg SUSUYEV was made Deputy Prime Minister in March.

Russian-Chechen Oil Accord Signed in Baku

· Moscow, Grozny, and Baku have signed a key accord on the transport of Azeri Caspian Sea oil to Russia's Black Sea port of Novorossiisk, via Chechnya, clearing the way for early oil exports by the Azerbaijan International Operating Co. (AIOC). Russian First Deputy Prime Minister/

Today's News Highlights

Russia

Bomb at Mil. Prosecutor's Office

CB Accuses Vavilov, Unikombnk

Far Eastern Airline Bankrupt

S&P Rates Alba Alliance Bank

European Republics

Ukraine Names New PM

Belarus Buys Scania Trucks

South Caucasus & Central Asia

Turkey's Demirel in Georgia

Kyrgyz Akayev in the US

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YARIKHANOV told Itar-Tass that repairs on the 153-km Chechen section of the oil pipeline can be completed within a few weeks. Repairs, to be carried out by Russian pipeline company Transneft, are expected to cost about $2.3 million. According to Yarikhanov, the pipeline will carry 200,000 tons of Azeri oil before the end of this year, and later five million tons of oil will be transported annually from Baku to Novorossiisk. He would not disclose the amount of oil tariffs expected by Chechnya.

Bomb Planted at Mil. Prosecutor's Office

· A bomb exploded outside the building of the Military Prosecutor's office in Moscow at 4:00am on Sunday, but no one was hurt, reported Itar-Tass. The device had the estimated power of 100 grams of TNT.

A military patrol discovered the explosive device, moved it away from the building, and called the police. The bomb squad arrived, but was unable to defuse the device before it exploded.

Several corruption cases are pending against high-ranking military officers. Interfax reported on Friday that Maj.-Gen. Viktor MALUZOV, a top official in the North Causasus Military District, was arrested and charged with unspecified "violations relating to the decommissioning of damaged armed vehicles" during the war in Chechnya, said RFE/RL. Also, the embezzlement case against former Navy Chief of Staff Igor KHMELNOV has reportedly gone to court.

Economy

Ruble = 5,776/$1.00 (NY rate)

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

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

CB Accuses Vavilov, Unikombank

· Russia's Central Bank issued a statement today, accusing former Deputy Finance Minister Andrei

Vavilov of abuse of office in handling state funds in two cases which cost the government more than $500 million, reported Prime-Tass. Russian commercial bank Unikombank was also alleged to have mishandled budget funds.

The statement cited two instances during 1996 and 1997, when Vavilov concluded agreements on the allocation of budgetary resources as an advance in the form of domestic currency loan bonds, which

This Week's Happenings

¨ British Foreign Secretary Robin Cook arrived in Moscow on July 13 to discuss bilateral relations and international security issues with Russian Foreign Minister Yevgeny Primakov. Cook is also due to meet with First Deputy Prime Minister Boris Nemtsov and Moscow Mayor Yuri Luzhkov. Cook's trip to Moscow is in preparation for British Prime Minister Anthony Blair's visit to Russia at the beginning of fall.

¨ German Foreign Minister Klaus Kinkel will arrive in Moscow on July 15 for talks with his Russian counterpart Yevgeny Primakov. KINKEL will take part in the opening ceremony of a joint Russian-German enterprise that will manufacture chocolates in the town of Pokrov, Vladimir Oblast. Germany will be represented in the joint venture by Stollwerck AG.

¨ On July 17, NATO and Russia will hold the first meeting of their joint council, set up by the Russia-NATO Founding Act, signed in May. The meeting be in Brussels at the ambassadorial level.

¨ Russian Prime Minister Viktor CHERNOMYRDIN will visit Belgium on July 17_19 to meet with Belgian and European Union officials.

¨ A new round of parliamentary elections in Chechnya will be held on July 19. This will be the fourth attempt to elect Chechnya's 65-seat legislature. During the previous three rounds, only 47 deputies were elected. Sixteen more deputies are hoped to be elected on July 19, while three constituencies will have to hold new polls. In addition, mayoral elections will be held in Grozny and several other towns and settlements where the results of the May 31 polls were declared invalid.

Fuel and Energy Minister Boris Nemtsov, Azeri state oil company SOCAR president Natik Aliyev, and Chechen oil company YUNKO head Khozh-Ahmed Yarikhanov signed the long-awaited oil transport agreement late Friday, promising safe and reliable transit of Azeri oil through Chechen territory and outlining pipeline reconstruction efforts. Transit tariffs for oil passing through Chechnya will be set in a separate agreement.

When you need to know it as it happens

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passed through the accounts of several banks. Unikombank was named as the only bank to mishandle the funds. In one deal, involving the Moscow Oblast government, an estimated $275 million in budget funds, which were supposed to be used to repay debts to the social welfare sector, were lost. The second deal involved the MAPO-MiG aircraft company and $237 million.

The statement said there were numerous breaches of procedures and rules by the Finance Ministry during the allocation of budget funds, but Central Bank head DUBININ noted that former and current Finance Ministers, Aleksandr Livshits and Anatoly Chubais, were not notified about the transactions.

Unikombank directors committed a number of flagrant violations of the rules for operations with bonds and rules for their accounting, said the statement. The cases are under investigation by the General Prosecutor's office.

DUBININ had earlier said that there were two commercial banks involved in the misuse of budget funds and the Russian press had speculated that MFK bank, which is owned by Uneksimbank and was until recently headed by VAVILOV, was the other culprit. No mention was made of MFK in today's Central Bank statement. According to Uneksimbank spokesman Modest KOLEROV, "all the critical articles were placed and paid for by our competitors," reported today's Financial Times.

The FT noted that VAVILOV is currently out of the country, but cited KOLEROV as saying that he was merely on vacation.

Novgorod to Benefit from IBRD Health Project

· Russia's northern Novgorod Oblast will receive a one-year, $2.5 million loan from the International Bank for Reconstruction and Development (IBRD) to purchase updated equipment for regional medical centers, reported Itar-Tass. Novgorod governor Mikhail Prusak has signed a supplies contract with the Russian Health System fund, the government agency in charge of contacts with Russian regions enrolled in the IBRD project.

Novgorod Oblast health committee chairman Valery Medik told Itar-Tass that the IBRD loan comes at a time of dire need, with the region's hospitals and

outpatient clinics having received only 3-5 percent of target appropriations.

Far Eastern Airline Goes Under

· Russian Far Eastern-based airline, Orient Avia, declared bankruptcy today, stranding hundreds of passengers in the Vladivostok and Petropavlovsk-Kamchatsky airports, reported Russian independent television NTV. The company has sold 2,000 tickets and is now negotiating with other airlines to provide service to its passengers.

Business

S&P's Rates Russia's Alba Alliance

· Standard & Poor's on Wednesday has assigned its single-'B' long-term and its single-'B' short-term counterparty ratings to Russian commercial bank Alba Alliance, said Standard & Poor's CreditWire. The long term outlook is stable.

The single-'B' rating is based on the strength of the bank's capital base and the low risk nature of its current business profile. This is balanced by the bank's relatively small size in terms of total assets and the limited diversity of its operation.

Founded in 1992, Alba Alliance has grown to be one of the larger Russian banks when ranked by shareholders' equity, with $80.3 million, or 59.5 percent of assets at the end of December 1996. According to S&P's $80.2 million of the bank's equity is internally generated, reflecting the bank's remarkable growth up to 1996, assisted by the volatility of the Russian bond and foreign exchange markets, where the bank has been a significant player.

Concurrently, the bank is avoiding lending because of high perceived default risks and an uncertain legal framework. Instead, it has placed more emphasis on developing brokerage and investment management The bank also provides tax advisory services.

European Republics

Ukraine Chooses New Premier

· Ukrainian President Leonid Kuchma has appointed Valery Pustovoitenko as the country's new prime minister, reported United Press International (UPI). Pavlo Lazarenko resigned as premier on July 1, citing health reasons.

When you need to know it as it happens

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Pustovoitenko, who is currently a minister without portfolio, must be approved by the Ukrainian parliament. A vote is expected next week, during the last parliamentary session before summer recess.

Belarus Buys Swedish Trucks

· Swedish truckmaker Scania AB said on Thursday that it has received an order for 58 trucks from Belarus state company Belmagistral Autotrans, reported Dow Jones. Belmagistral Autotrans will divide the trucks between several smaller transport companies that are part of the group. The trucks will be used for transport between Belarus, Russia, and western Europe.

In 1996, Belarus purchased 250 trucks from western Europe, including 43 from Scania.

South Caucasus & Central Asia

Hillary Clinton to Central Asia

· US First Lady Hillary clinton is planning to visit some former Soviet republics in autumn, with a

preliminary itinerary that includes Uzbekistan, Kazakhstan, and the Russian city of Yekaterinburg, reported Itar-Tass, citing US News & World Report. According to White House sources, Hillary Clinton's tour of the former Soviet republics is designed to strengthen the civil and economic rights of women and children, said the news agency

Turkish President to Georgia

· Turkish President Suleiman Demirel and his Georgian counterpart Eduard Shevardnadze in Tblisi today signed nine cooperation agreements including a joint declaration supporting the construction of a proposed oil pipeline from the Caspian Sea across Georgia and Turkey, reported Reuters. The pipeline would run from Baku, across Georgia, to the Turkish Mediterranean port of Ceyhan. Azeri President Geidar ALIYEV has expressed his support for the route, but it is one of three under consideration by the Azeri government and the Azerbaijan International Operating Co. (AIOC) consortium.

Georgia and Turkey also signed agreement in the areas of military training, taxation, education, sea traffic, borders, real estate, archives, and transport.

Demirel arrived in Tbilisi today for a two-day state visit to discuss the situation in Abkhazia, and other regional and international issues.

Kyrgyz President in the US

· Kyrgyz President Askar AKAYEV arrived in the US on July 11 for a seven-day state visit. So far, he has met with International Monetary Fund (IMF) Deputy Managing Director Alassane OUTTARA, UN Secretary General Kofi ANNAN, and billionaire philanthropist George SOROS, who has invested several million dollars in Kyrgyzstan, said RFE/RL.

The IMF recently increased lending to Kyrgyzstan based on surprise growth in Kyrgyz GDP to 5.6 percent in 1996 from 1.3 percent in 1995, it said.

Kazakhstan Facing Population Crisis

· Kazakhstan will take measures to combat a crisis of declining population growth and decreasing life span, reported Xinhua, citing a report released at a population conference in Almaty today. The average life span in Kazakhstan decreased by 4.7 years to 64.9 in 1995 from 1990, and the population growth rate dropped to 5.3 persons per thousand in 1996 from 13 persons per thousand in 1991, said the report. In addition, the birthrate has been declining, while the infant mortality rate is increasing.

Nelson Says IFC Holds 5% of Zeravshan

· Canada's Nelson Gold Corp. Ltd. announced today that the International Finance Corp. (IFC) has completed and paid for its purchase from Nelson Gold of a five percent stake in the Zeravshan Gold Co. in Tajikistan, said a company press release.

Nelson Gold has received proceeds of $6.46 million from the transaction, with a commitment from the IFC to fund Zeravshan, on a pro-rata basis, by an additional $1.04 million.

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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