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

Wednesday, July 23, 1997

(ASEAN) will be held. Russia is not a member of ASEAN, but will take part in some ASEAN discussions. Primakov will also hold several bilateral meetings, including with US Secretary of State Madeleine Albright.

Finally, Primakov will arrive in Bangkok. His visit there will be timed to mark the 100th anniversary of the establishment of diplomatic relations between Russia and Thailand.

Navy Plans to Cut 30,000 Men This Year

· Russian naval commander-in-chief Adm. Feliks Gromov told reporters in Vladivostok today that the Navy will reduce its servicemen by about 30,000 before 1998, reported Interfax. The reforms in the Navy, which currently is a force of about 227,000 men, will be completed gradually, he said.

Gromov said ships that do not meet existing requirements will be decommissioned, all supply structures will be streamlined, and new equipment is due to be introduced. The fact that Russia's navy accounts for a third of the country's nuclear potential "must certainly be taken into consideration during reform of the armed forces," he added.

He also said that the reform of the Pacific Fleet and major reductions in forces there would take place between 1997 and the year 2001. Gromov said that two major bases, one in Kamchatka and the other in Primorsky Krai, are expected to remain active.

Russian Federation

Politics

Yeltsin Vetoes Restrictive Religion Law

· Russian President Boris Yeltsin on Tuesday rejected a controversial law that would have placed restrictions on religious freedom in Russia. In vetoing the law, YELTSIN defied the wishes of a majority of State Duma deputies and the Russian Orthodox Church and supported the wishes of the United States and Pope John Paul.

YELTSIN admitted that vetoing the law was a "difficult decision," according to a presidential press service statement. He agreed that Russians need to be protected from radical religious sects, but noted that "many provisions of the law infringe on constitutional rights and freedoms, introduce inequality of religions, and run counter to the international obligations of Russia."

The president suggested that the parliament amend the law, warning that signing it in its present form "would become a reason for religious conflicts inside the country."

Primakov Leaves on Asian Trip

· Russian Foreign Minister Yevgeny Primakov left Moscow today for Seoul, the first leg of his tour of South Korea, Malaysia, and Thailand, reported Itar-Tass. During the visit to South Korea, Primakov is expected to meet with President Kim Young-Sam and hold talks with his South Korean counterpart Yoo Chong-ha. The sides are expected to sign an agreement on establishing a hot line between the presidents of Russia and South Korea.

On July 26, the Russian delegation will arrive in Kuala Lumpur, where an annual series of meetings of the Association of South East Asian Nations

Today's News Highlights

Russia

CB Restricts Unikombank

Norilsk Nikel Auction Begins

Ericsson Gets Russia Order

Islamic Bank in Russia

Russia-Brazil Truck JV

Omnipoint Adds Russia GSM

South Caucasus & Central Asia

Eizenstat on US Regional Policy

Turkmen GDP Down

York in Kazakh Wind Energy Deal

Politics-Economics-Business

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Wednesday

July 23, 1997

Intercon's Daily

Economy

Ruble = 5,791.5/$1.00 (NY rate)

CB Cracks Down On Unikombank

· The Russian Central Bank's committee for banking supervision has discussed results of an inspection of Unikombank and decided to demand the resignation of the bank's three leaders and to limit the bank's operations with securities, Central Bank sources told Prime-Tass on Tuesday. The Central Bank will ask for the resignations of Unikombank board chair Nina Galanicheva, her first deputy Andrei Glariozov, and deputy Sergei Pashvykin.

The limits on operations with securities (deposit and trustee operations) will be introduced for a period of six months and can be lifted, if the bank brings its accounts in line with legislation, said the head of the Central Bank's second operational department. He said the limits mean that the bank can work in accordance with its previous agreements, but is not able to prolong them or sign any new agreements.

Unikombank was registered in 1990. Some 51 percent of shares belong to the administration of the Moscow region. The bank's assets totaled some five trillion rubles as of January 1, 1997.

Last week, Central Bank chairman Sergei Dubinin accused Unikombank of mishandling the government budget funds. In addition, serious accounting problems were revealed at the bank. According to Central Bank officials, Unikombank heads opposed the Central Bank's inspection.

Central Bank Chairman Sergei Dubinin, together with First Deputy Prime Minister Boris Nemtsov, went to Samara today for meetings with President Boris Yeltsin who is on vacation. However, Nemtsov said that the recent scandal caused by Dubinin's accusations against Unikombank would not be discussed during the meeting, said Itar-Tass

Bidding for Norilsk Nikel Stake Begins

· The Russian Federal Property Fund announced Tuesday that bidding has begun for a 38 percent stake in metals giant Norilsk Nikel, reported the Associated Press (AP). The bidding will close on August 1 and the results of the tender will be announced on August 5.

The 38 percent government stake was transferred in trust to Oneximbank in November 1995 in exchange for a loan of $170.1 million. The starting price of the stake is over ECU131.6 million, and the its nominal value is 11.9 billion rubles. Under the terms of the tender, the winner must repay the loan and invest $300 million in a Norilsk Nikel project to develop the Polyatkinsky gas condensate deposit.

In addition, the winner must transfer 400 billion rubles to the accounts of the Norilsk Nikel within five days of the date that a sales contract is concluded. Half of this sum will be channeled to pay the debts of the company's subsidiaries to the Russian Pension Fund, while the rest will go to pay for social services in the city of Norilsk.

Last week, Britain's Trans World Metals Ltd. sent an appeal to President Boris YELTSIN to call off the Norilsk auction, charging that the sale was rigged to prevent bids by serious outside investors. Trans World complained that the sale offered too little time for foreign investors to study the company, prepare bids, and meet the requirement of placing more than $500 million in deposits in advance of the sale.

An Oneximbank spokesman told Prime-Tass that the bank's subsidiary, Interros holding company, is expected to offer a bid for the stake.

Business

Ericsson Receives VimpelCom Order

· Swedish telecommunications firm LM Ericsson Telefon said that it received a $54 million order for a digital advanced mobile phone service (D-AMPS) from Moscow wireless communications operator VimpelCom, reported Newsbytes on Tuesday. Ericsson officials said this order is the largest order ever for any D-AMPS/AMPS cellular system in Russia, and is the seventh expansion of the network.

VimpelCom, selling its services under the Bee-Line trademark, is the biggest cellular operator in Russia and the CIS, with more than 65,000 subscribers in its Moscow network.

The order is for the supply and installation of additional RBS 884 Radio Base Stations and additional mobile switch. The first deliveries are scheduled for August 1997.

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Wednesday

July 23, 1997

Intercon's Daily

Islamic Bank to Open in Russia

· Russia will soon open a joint venture bank, Badr Bank, that will operate under Islamic rules, reported today's Izvestia. Islamic law does not allow the charging of interest for loans. The bank will be majority-owned by Russian companies, which will hold 51 percent of the shares. The remaining start-up capital will come from Iran, Saudi Arabia, Kuwait, Egypt, Qatar, and Sudan. Izvestia said the bank's capital will initially total over $20 million, but this would be increased as the bank expands.

Badr Bank plans to finance long-term projects in the arms sector, shipbuilding, and space technology, as well as ecological projects. The head of the new bank, Adalet Jabiyev, said the bank is considering a long-term investment around the Baikal-Amur railway in Russia's Far East. Jabiyev said the bank will also support joint projects between Russia and the Middle East.

Russia-Brazil Truck Manufacturing JV

· Russia and Brazil today signed an agreement in Miass, a city in the Urals region of Chelyabinsk, on the creation of a joint venture to assemble and service Ural trucks, a spokesman for the JV directorate told Itar-Tass. The first consignment of these trucks was exported to Latin America several years ago and the trucks were highly appreciated in the conditions of bad roads, it said. The joint venture was founded by the Brazilian firm KO.

Omnipoint Adds Russian GSM Operator

· New Jersey-based Omnipoint Communications Services on Tuesday announced that it launched commercial roaming with NorthWest GSM of St. Petersburg, a Global System for Mobile communications (GSM) operator in Russia, said a company press release. Omnipoint has international roaming agreements with 14 countries in which Omnipoint customers can use their digital wireless services.

USIA report. US policy toward the region "is to promote sovereign, prosperous, resilient, democratic states," he said.

EIZENSTAT outlined for the Committee the CLINTON Administration's five main policy objectives for the region, which includes Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan:

(1) Support of these states' efforts to reform their political and economic systems, create market economies, pursue democratization, and respect human rights. (2) Encouragement of their rapid integration into international political and economic institutions. (3) Promotion of rapid development of Caspian energy resources, with US participation. This includes support for the construction of multiple pipeline routes to export oil from the region. It also includes further expansions of the European transportation corridor, and the communications, transportation, and other infrastructure necessary to develop stronger ties among the countries of the region and with the West. (4) Promotion of good regional relations and of the resolution of conflicts in Georgia, Azerbaijan, and Tajikistan, assisted by international mediation. (5) Promotion of cooperation between Russia, Turkey, and other neighboring countries of the region with these states, while isolating Iran.

Upcoming Events

Russian Far East Oil, Gas, & Mining Conf/Exhib.

September 30_October 3, 1997

Khabarovsk, Russia

Organized by: The World Trade Center Alaska

for the US Trade & Development Agency,

Corporate sponsors: Alaska Airlines and Natchiq Inc.

The program has two components:

(1) a four-day exhibition featuring US products and services in the oil, gas, mining, and environmental services industries; and

(2) a one-day US-Russia investment conference aimed at identifying potential business projects

in the RFE and sources of financing.

Info: Margo Cummings, World Trade Center Alaska

Tel: 907-278-7233; Fax: 907-278-2982

Registration deadline: August 22, 1997

South Caucasus & Central Asia

Clinton Admin. Outlines S. Cauc./Cen Asia Policy

· US Undersecretary of State for economic and business affairs Stuart EIZENSTAT told the Senate Foreign Relations Committee on Tuesday that the eight countries of the South Caucasus and Central Asia constitute a region that is "of growing strategic importance to the United States," according to a

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July 23, 1997

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EIZENSTAT's testimony to the Senate follows two other major speeches on the region by US officials—Undersecretary of State Strobe TALBOT spoke at SAIS and Senator Sam BROWNBACK at Heritage Foundation—and visits to Washington by two presidents from the region—Askar AKAYEV of Kyrgyzstan and Eduard SHEVARDNADZE of Georgia—while Geidar ALIYEV of Azerbaijan is expected next week.

The countries of the South Caucasus and Central Asia, particularly the Caspian Sea littoral states, are the hot topic in Washington. The region's strategic importance and huge oil reserves have now attracted the notice of the US and the world and are prompting a rethinking of official policy, as well as an influx of investment. Moreover, the attention riveted on this region is only likely to grow more focused and intense in the future.

Turkmen GDP Down Drastically

· Turkmenistan's gross domestic product declined by 29 percent in the first six months this year, and industrial output fell by 35.2 percent, compared with the same period last year, reported Xinhua. The country's National Statistics Bureau attributed the drastic drop to the suspension of Turkmen gas exports in March because of a lack of export outlets.

Turkmen oil output in the first six months of this year increased by 1.3 percent, from the same period last year, to 2.2 million tons, but natural gas output fell 46 percent to 122 million cubic meters.

Merhav Head on US Policy in Turkmenistan

· The head of a leading Israeli project development company urged the US "not [to] sit on the sidelines" as events unfold in Central Asia but, instead, to become an active partner with Turkmenistan and other countries in the region, said a Business Wire report. "This is an area that, in the near future, is poised to be the probable successor to the Persian Gulf in securing long-term energy sources for much of the world," Yosef A. Maiman, president and CEO of the MERHAV Group of Companies, said in a

written statement to the Senate Foreign Relations Committee on Tuesday.

Maiman called on the United States and other Western countries to "begin now by building strong strategic and business partnerships" with Turkmenistan and other Central Asian countries. "Turkmenistan is a country that is sending signals that it is committed to building better relations with Washington. It is time to act on those signals," he said.

MERHAV has played a significant role in agriculture, health, and energy projects in several Central Asian countries, including investing well over $1 billion in projects in Turkmenistan.

In early November 1997, Turkmenistan is scheduled to sponsor an oil and gas conference in Washington, to be attended by the country's president, Saparmurat Niyazov, said Business Wire. This will occur only a few weeks prior to the issuance of tenders (totaling several billions of dollars) for oil and gas exploration and exploitation.

York in Kazakh Wind Energy Deal

· York Research Corp. said on Tuesday that it has agreed to build a $600 million wind energy power systems at Dzhungar Gates in Kazakhstan, reported Reuters. The company said the Gulf Syndicate, a consortium of banks, corporations, and investors based in Kuwait and the United Arab Emirates, will finance the system.

The financing is under an agreement wherein York's subsidiary, York WindPower Corp., recently was awarded exclusive global rights to develop wind energy power systems.

York WindPower's consortium partners will provide all the necessary financing with York WindPower acting as developer and project manager. The company said it expects to complete the first 50 megawatt phase of power capacity in late 1998 with increases scheduled over a period of years, until a total of at least 500 megawatts is in operation.

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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