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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

Monday, July 21, 1997

Russian Federation

Politics

New Izvestia Editor Elected

· The board of directors of the Izvestia newspaper editorial board elected Vasily Zakharko as the paper's new editor-in-chief on Friday, reported RFE/RL. Zakharko began work at Izvestia as a reporter in 1972 and served as its deputy editor-in-chief from February 1996.

ZAKHARKO replaces Igor GOLEMBIOVSKY, who was forced out by the paper's major shareholders, oil company Lukoil and commercial bank Oneximbank.

New Developments in Chechnya

· Chechen security service director Abu Movsayev has resigned "at his own request," reported Itar-Tass on Saturday. Security service first deputy chief Apti Batalov was named to be the agency's new head. Movsayev told members of the service in his farewell speech that he remains a loyal supporter of President Aslan Maskhadov.

According to Saturday's Nezavisimaya Gazeta, Movsayev and field commander Shamil Basayev, who resigned as Chechen Deputy Premier last week, have formed a new private security organization, called Patriot, which aims to assist the restoration of the country and combat crime. Patriot plans to ensure the security of individuals and legal entities on a contract basis, as well as to protect people who arrive in Chechnya on private or business trips.

The Chechen government has created a special commando unit charged with obtaining the release of all hostages held in Chechnya, including Russian journalists, said Itar-Tass. A Chechen decree gives the commandos special powers, including the right to execute anyone who offers armed resistance.

In addition, the Chechen government plans to create a special security force to guard the 153-km section of the Baku-Grozny-Novorossiisk oil pipeline, which will transport Caspian Sea oil beginning this autumn.

Also on Sunday, Grozny announced plans to take emergency measures to prevent thefts of oil and petrochemical products from the republic's supplies, reported Itar-Tass. Within the next few days, President Aslan Maskhadov will issue a decree giving the republican law enforcement agencies additional powers to bring criminal charges against those involved in illegal oil operations and trade.

So far, the Chechen government has been unable to counter the large number of illegal oil traders who have been siphoning raw materials from oil wells or pipelines in the republic.

Economy

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

Ruble = 5,789/$1.00 (CB rate)

Ruble = 5,782|5,796/$1.00 (buy|sell rates)

US Trade Deficit with Russia Widens

· The US trade deficit with Russia grew to $106 million in May, compared with a deficit of only $3 million in April, according to the US Department of Commerce. May exports to Russia totaled $259 million, down from $313 million worth of exports in April. Meanwhile, US imports from Russia rose to $365 million in May from $316 million in April.

Today's News Highlights

Russia

This Week's Happenings

Enterprise Reform Planned

Belgium to Buy Russian Gas

Valenti Fights Russia Piracy

Yeltsin Signs Diamond Decree

ITF Tosses Russian Union

South Caucasus & Central Asia

Shevardnadze Meets Clinton

US Supports peace in Abkhazia

Northrop Grumman & Georgia

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Monday

July 21, 1997

Intercon's Daily

The Week's Happenings

¨ The Russian Security Council will meet on July 21 to discuss ways of solving the aggravated situation in the Republic of North Ossetia's Prigorodny region. The conflict between Ingush people returning to Prigorodny from STALIN-era exile in Kazakhstan and the current Ossetian residents of the area has re-ignited in the last few weeks.

¨ Also, the North Ossetian Interior Ministry will hold a meeting of top-level officials in Vladikavkaz on July 22, with the participation of Russian Deputy Interior Minister Petr Latyshev.

¨ An International Monetary Fund (IMF) delegation will arrive in Moscow on July 22 for 10-day monitoring of the Russian economy. The delegation will make recommendations for the IMF board of directors on the second quarter tranche of a loan for Russia. The delegation will focus on federal budget revenues, tax collection, and the restructuring of Russian enterprises.

¨ World Trade Organization (WTO) members will meet in Geneva on July 22 to continue talks on Russia's application to join. Moscow wants to accede to the WTO in 1998 and First Deputy Premier Anatoly CHUBAIS is leading the negotiations. However, western trade officials say Russia is far from meeting the obligations for membership. One major concern is copyright piracy.

¨ On July 23, the UN will begin three days of talks aimed at jump-starting the Georgia-Abkhazia peace process. In addition to the two sides, representatives of Russia, France, German, Britain, and the US will join the talks in Geneva.

¨ On July 25, Russia is expected to announce the winner of a tender for a 25 percent stake in Russian telecom holding company Svyazinvest.

¨ Siberia's Irkutsk Oblast will hold a gubernatorial election on July 27 to replace Yuri NOZHIKOV, who resigned in April. Out of nine contenders, the front runners are: Irkutsk Mayor Boris GOVORIN, who is backed by NOZHIKOV; Communist-backed candidate Sergei LEVCHENKO; and Ivan SHCHADOV, the director of the Vossibugol coal enterprise, who is backed by Aleksandr LEBED.

Enterprise Restructuring Plan Drafted

· The Russian Economic Ministry has drafted a framework plan for the restructuring of inefficient Russian enterprises, reported Interfax. The plan calls for enterprises to undertake efforts to attract investors, both domestic and foreign, to protect the interests of all shareholders, and to clearly divide responsibilities between owners and management.

The Ministry said that major problems with Russian enterprises are inefficient management, lack of responsibility on the part of leadership, a lack of transparency, and an absence of the reliable financial information needed to run an efficient business.

The framework also plans concrete demands on enterprises, such as adhering to international accounting standards. Enterprises that meet the demands contained in the framework would be given priority in winning government investment.

If approved by the government, the framework would serve as the basis for reforms aimed at transforming unproductive enterprises into companies that can compete in the conditions of a market economy.

Chernomyrdin Signs Gas Accord in Belgium

· During a trip to Belgium last week, Russian Prime Minister Viktor Chernomyrdin visited the Zeebrugge port on the North Sea and the major gas terminal of the Distrigas company. Chernomyrdin met Belgian businessmen who are interested in taking part in the construction of the Yamal-Western Europe gas pipeline. Russian gas monopoly Gazprom and Distrigas signed an agreement to supply 1.5 billion cubic meters of Russian gas to Belgium.

Moscow Film Festival Opens w/US Valenti

· Combating video piracy will be a main focus of the 20th Moscow International Film Festival (MIFF), beginning July 19, with Motion Picture Association of America (MPAA) President Jack Valenti leading a series of top-level meetings at the event that will lead to the formation of a Russian Anti-Piracy organization, reported Entertainment Wire on Friday.

"This is high priority," said MIFF President Sergei Soloviev. "Tough new laws against piracy have been enacted this year to rid the country of this very serious problem. It is estimated that 90 percent of the Russian video market is pirated material."

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	Monday		July 21, 1997
	Intercon's Daily
	Valenti's visit—he will also meet with government and industry officials and Russian Prime Minister Viktor CherNomyRdin—is seen by the Russians as a major endorsement of the country's efforts to combat piracy and as a sign that the MIFF is back on track as a world film festival, he said. Soloviev is using the Festival to show that foreign investment in the Russian film industry is a worthwhile proposition. Russian government grants totaling 30 billion rubles ($6 million) were donated to this year's Festival with 80 percent of the total coming from the city of Moscow. The number of films made by the Russian film studio Mosfilm rose to 26 this year, but only six were Mosfilm's own productions—funding for the rest came from foreign and outside sources. Director Nikita MikhaILkov, winner of the Cannes Film Festival Best Foreign movie award ("Burnt By The Sun") is currently completing his latest film in Moscow with support from a French film company. Business Yeltsin Signs Decree on De Beers Accord · Russian President Boris YELTSIN on Sunday signed a long-awaited decree giving the green light for the signing of a diamond trade and marketing agreement between Russian diamond company Almazy Sakha-Rossii and South Africa's De Beers, reported Dow Jones. The trade deal is now expected to be signed within a week. The trade deal has been ready since autumn 1996, but has been held up by bureaucratic delays and political infighting. It will give De Beers control over 95 percent of Russia's rough diamond exports. The decree also authorizes Almazy to export rough diamonds. The diamond trade in Russia has been virtually paralyzed for months because of the lack of agreement with De Beers and the Russian government's failure to approve export licenses. Transport Org. Tosses Russian Union · The London-based International Transport Workers' Federation last week suspended from membership Russia's Water Transport Workers' Union, reported Monday's Journal of Commerce. The move was prompted by evidence that the Rus	sian union has continued to defy an ITF executive decision in April that suspended its right to conclude ITF-acceptable collective agreements for flag-of-convenience ships. A main goal of the ITF, which encompasses 500 transport workers unions from over 100 countries, is the elimination of flag-of-convenience ships. The ITF is advising shipowners that the Russian union is no longer an ITF affiliate. Any ships employing crews with a collective agreement negotiated by the Russian union could be the target of an ITF-sponsored industrial action.
		South Caucasus & Central Asia Georgia's Shevardnadze Meets with Clinton · Georgian President Eduard SHEVARDNADZE's just-completed trip to the US was a resounding success. SHEVARDNADZE and his country received much high-level attention and kudos for their political and economic progress. Georgian-US relations are warm and Tblisi is reaping the benefits of this good will in terms of US assistance, attention and support from the US executive and legislature, and potential investment in the country. A joint statement on US-Georgian relations released by the White House on Friday, following the presidential summit, said that Presidents Clinton and Shevardnadze underscored the special importance they attach to a close and productive relationship between their two countries. "They committed to work together actively to expand cooperation throughout the foreign policy, security, economic and commercial spheres. The presidents noted that the growing US-Georgia partnership is firmly based on common goals and values and reflects the national interests of both states." They "called for expanded cooperation, both bilateral and multilateral, to promote Georgia's further integration into emerging European security structures… [and] expressed strong commitment to assisting Georgia's efforts to…develop a modern military under civilian control and a viable border guard." US Supports Peace Efforts in Abkhazia · Following a meeting with US President Bill

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Monday

July 21, 1997

Intercon's Daily

Clinton on Friday, Georgian President Eduard Shevardnadze said that he had obtained Washington's support for an expanded international effort to help end Georgia's conflict its separatist region of Abkhazia, reported Reuters.

Shevardnadze told reporters in Washington that Clinton promised that the US will "actively participate" in a broader approach to reaching a peaceful end to the conflict in Abkhazia.

A joint written statement issued by the White House said: "President Clinton reaffirmed US support for Georgia's territorial integrity and a peaceful settlement to the tragic conflict in Abkhazia. The United States and Georgia support the early resumption of negotiations on Abkhazia, under the aegis of the UN, with Russia as facilitator and the participation of the OSCE and the other Friends of Georgia countries—France, Germany, the United Kingdom, and the US."

Shevardnadze met with UN Secretary General Kofi Annan in New York today to discuss Abkhazia. "Our request [to the UN] is that the operation should be a large-scale operation, and multilateral and multinational, with the participation of the Russians," Shevardnadze is quoted by Reuters as saying.

Answering a question posed by Intercon at a speech made today at the Johns Hopkins' School of Advanced International Studies (SAIS) in Washington, US Undersecretary of State Strobe TALBOTT categorically rejected the idea of introducing US peacekeepers into Abkhazia, but left open the question of placing a Western contingent of UN peacekeepers in the region.

Meanwhile, Russian Defense Minister Igor Sergeyev told reporters on Saturday that the Russian peacekeeping force in Abkhazia should stay on after July 31 when its mandate expires. "I am sure that Russian troops will stay in Abkhazia and Russia is not spending too much on the peacekeeping mission there," he is quoted by Xinhua as saying.

And, Abkhazian Prime Minister Sergei Bagapsh told Interfax Saturday that: "Abkhazia wants the mandate of the Russian peacekeeping force extended and flatly rejects the idea put forward by Tblisi that Russian peacekeepers must be replaced by a UN force." BAGAPSH said that Abkhazia had accepted a Russian-proposed protocol to settle the conflict, which Georgia rejected, and would make no further concessions. Therefore, he said he doubted any progress would be made in the next round of talks in Geneva, scheduled for July 23.

Northrop Grumman Gets Georgia Contract

· Northrop Grumman Corp. said Friday that it has been selected by the government of Georgia to provide a nationwide air traffic control (ATC) system, said a company press release. The $15.7 million ATC system followed a feasibility study jointly funded by the US Trade and Development Agency and Northrop Grumman. The financing for this system is being guaranteed by the US Export-Import Bank.

It is the first Eximbank financing made to Georgia and the first to any country that will rely solely on revenue generated by overflight fees to service and guarantee the repayment of debt, said the release.

Northrop Grumman's Baltimore, MD-based Electronic Sensors and Systems Division (ESSD) will provide Georgia with two monopulse secondary surveillance radars and an airspace management system that provides both radar and flight data processing. Other elements of the system include microwave communications, generators, and uninterruptable power supplies. Logistics support elements such as spare parts, training and documentation also will be provided.

"This contract represents a significant milestone in American investment in the region and will provide Georgia with a modern ATC system that can be easily expanded in the future," John Moynes, vice president of ESSD's Airspace Management Systems business unit, is quoted as saying.

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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