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

Thursday, July 24, 1997

Yeltsin said that following approval the program will receive the status of a presidential program. "Fuel is not used rationally in the country," he said.

Sale of Military Property: This decree calls for the sale of non-essential military property in order to raise money for wages and help finance military reform. The military owns 9,300 retail outlets, cafes, sport centers, and other unprofitable facilities. The army will retain its operations in remote areas.

Management Training Abroad: This decree calls for 5,000 top-level and 35,000 mid-level executives who will work in federal or regional agencies to be trained abroad. The potential trainees must be under 35 year of age, but "an exception will be made for officers discharged from the army under military reform." According to Yeltsin, German Chancellor Helmut Kohl has phoned him and offered to train 1,000 Russian administrators in Germany.

Foreign Credit Guarantees: This decree says that state guarantees on foreign credits will only be offered to companies which have no debts to the budget or social funds, including the Pension Fund. The decree also stipulates that the guarantees will be provided openly and on a competitive basis. Nemtsov said of the decree: "The paid handout of guarantees is over, the competitive one begins," meaning that, previously, credit guarantees were distributed by certain officials who profited by their ability to allocate guarantees, according to Itar-Tass.

Russian Federation

Politics

Yeltsin Signs a Number of Decrees

· Russian President Boris Yeltsin on Wednesday signed a number of economic documents at the Volzhsky Utyos resort in Samara on the Volga River. The decrees were signed during a visit from First Deputy Prime Minister Boris NEMTSOV.

Production-Sharing Deals: The president signed a law listing seven energy and mineral deposits eligible for development under production-sharing agreements. The bill was passed by both houses of parliament. Under the law, foreign investors may participate in developing only two deposits, the Kuranakh gold deposit and the Prirazlomnoye oil deposit on the Barents Sea shelf. The other five deposits are only open to domestic investors.

UES Sale: This decree calls for Russian electricity monopoly Unified Energy Systems (UES) to issue bonds to pay off its debt to the state budget. Some $1 billion worth of bonds will be placed on domestic and foreign markets to raise funds, which the government will use to pay salary arrears to servicemen and police.

In addition, YELTSIN vetoed a law that set the state share in UES at 51 percent and limited foreign ownership to 25 percent. The law was passed by both houses of parliament. The Russian government currently owns 52.7 percent of UES, while foreign shareholders have 27.8 percent. The law also stipulated that the state should transfer 33 percent of its stake to Russian regions.

Energy Conservation: This decree instructed the Fuel and Energy Ministry to prepare within two weeks a state energy conservation program.

Today's News Highlights

Russia

Pena Completes Russia Trip

CB Shakes Up Moscow Narodny

Roper Gets Eximbank OK

European Republics

Ramco Buys JKX Oil Co.

Armenian President in Ukraine

South Caucasus & Central Asia

Turkmen Gas Pipeline Deal

Sony in Uzbekistan

Kyrgyz & Kazakh GDP Up

Politics-Economics-Business

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Thursday

July 24, 1997

Intercon's Daily

OSCE Office in Chechnya Raided

· Unidentified intruders broke into Organization for Security and Cooperation in Europe's (OSCE) office in Grozny late Tuesday, robbing it and kidnapping two guards, reported the Associated Press (AP). The intruders stole about $30,000 from a safe, a car, and other valuables.

One of the guards was later released, but the other is reportedly still missing. None of the OSCE staff was in the office at the time.

Chechen officials that the attack against the OSCE did not have any political motives, but instead was aimed at material gain.

Economy

Ruble = 5,791/$1.00 (NY rate)

Ruble = 5,792/$1.00 (CB rate)

Ruble = 5,784|5,800/$1.00 (buy|sell rates)

Pena Says Russian Nukes Safe

· At a press conference in Moscow Wednesday, US Energy Secretary Federico Pena announced the signing of the cooperation agreement expanding the Materials Protection, Control, and Accounting (MPC&A) which will strengthen US-Russian non-proliferation and nuclear security efforts. Under the MPC&A program, US Department of Energy laboratories work with Russian nuclear labs to develop the security controls that keep the sensitive nuclear materials at Russian facilities secure.

Pena also briefed reporters on the 1998 summit of energy ministers in Moscow, the employment options for Russian scientists and engineers working with US companies in Russia, and the further development Russia's important energy resources.

"The fact is that Russia has vast energy resources, and by many accounts, international companies are ready to invest $60 billion in Russia's oil industry, but those investments are awaiting the development of a stable and transparent legal and regulatory framework to support them," he said, citing a recent study by the Petroleum Advisory Foundation.

Russian Laundering Ring Arrested in Sweden

· Swedish police have broken a Russian money laundering ring operating in Stockholm, reported

Xinhua on Wednesday. According to the Swedish media, more than eight million Swedish kronor (about $1 million) designated by the Russian government for the renovation of hospitals in Murmansk has been spent on luxury items by private individuals in Stockholm. Reports said that one of the suspects, a 37-year-old Russian, has been arrested and is awaiting extradition to Russia.

The Swedish and Russian police cooperated in "Operation Murmansk" to uncover the ring and make arrests and are expected to bust further money laundering operations. The police are investigating how the ring knew in advance about the Russian funds designated for hospital renovation equipment.

Two Million Russians Using Drugs

· Some two million Russians take illegal drugs and more than 300,000 of them are addicts, Interior Ministry officials told Interfax on Tuesday. Last year, there were five times as many recorded drug-related crimes as in 1990. Russian police and customs officials seized more than 50 tons of drugs.

The ministry also closed down 718 illegal drugs laboratories last year, said Interfax. One lab, housed in Moscow's Institute of Chemical Technologies, had been producing up to seven pounds of synthetic drugs a month with a street value of over $240,000.

Last month, the Interior Ministry estimated the current value of Russia's illegal drug trade at around $7 billion a year, 650 times greater than in 1991.

CB Shakes Up Moscow Narodny Bank

· The Russian Central Bank on Wednesday ordered some changes to the management of London-based Moscow Narodny Bank, in which it is a controlling shareholder, reported today's Financial Times. The Central Bank announced the appointment of Igor SUVOROV as MNB's chief executive and charged him with introducing tighter financial controls and developing the bank's trade financing activities more aggressively.

"Trade links between Russia and Britain are not as strong as they could be. Moscow Narodny Bank must find more clients in London," Central Bank deputy chairman Sergei ALEKSASHENKO is quoted by FT as saying. SUVOROV previously headed MNB's Singapore branch.

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Politics-Economics-Business

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Thursday

July 24, 1997

Intercon's Daily

In addition, two of MNB's senior directors in London, Yuri POLETAYEV and Aleksandr SEMIKOZ, have been recalled to Moscow. The management shakeup follows the discovery this year of a £6 million potential fraud against the bank involving a US customer with Ukrainian connections, said FT. Moscow Narodny, which is 88.9 percent owned by the Central Bank, has begun legal proceedings to recover the money.

Business

Roper Gets Eximbank OK for Gazprom Deal

· Bogart, Ga.-based Roper Industries, Inc. announced Wednesday that it has received notification from the US Export-Import Bank that the Bank has reached an agreement in principle with Russian gas monopoly Gazprom on all outstanding substantive issues related to the Bank's financing guarantee of Gazprom's financing for a $151 million contract for Roper's Compressor Controls Corp. unit to supply turbo-machinery control systems to Gazprom over a five-year period, said a Roper press release.

Eximbank indicated that it intends to move forward quickly with completing the documentation of the previously authorized transaction.

Tuesday, reported Itar-Tass. On Wednesday, the two presidents also signed intergovernmental agreements on scientific and technical cooperation, on avoidance of double taxation, on international automobile communication, and on border issues. The two countries defense ministries signed a document on treatment of servicemen and their families.

Speaking at a joint press conference on Wednesday, the presidents hope that a new transport corridor between the Ukrainian Black Sea port of Odessa and the Georgian port of Poti will give an impetus to the development of bilateral economic relations between the two countries, reported Itar-Tass. Ter-Petrosyan said that the resumption of Abkhazia's railway linking Armenia, Ukraine, and Russia will improve the development of economic relations between the three states.

Ramco Buys Up JKX Shares

· The UK's Ramco Energy Plc. has agreed to terms to pay about $90 million to acquire JKX Oil & Gas Plc., which has exploration interest in Ukraine and Georgia, said a Ramco press release. The company said that the acquisition of JKX is consistent with Ramco's strategy of focusing on opportunities within the former Soviet Union and Eastern Europe.

Ramco owns a 2.08 percent stake in the Azerbaijan International Operating Co. (AIOC), which is developing three major fields in the Caspian Sea.

JKX is an independent exploration and production company that has interests in commercial oil and gas production in Ukraine through its shareholding in the joint venture company, PPC, and in commercial oil production in Georgia through its shareholding in JKX Ninotsminda.

The JKX acquisition will strengthen Ramco's position in Georgia, adding to existing acreage awarded in June 1997 following the signing of a Production Sharing Contract with Georgian state oil company Saknavtobi. It will also broaden Ramco's geographical base by providing the opportunity for further expansion in Ukraine, where Ramco will seek to apply its strategy of partnering other large energy companies. Proven and probable reserves at Novo-Nikolaevskoye in Ukraine, net to the JKX interest, have been estimated by the JKX directors at 89 million barrels of oil equivalent.

European Republics

Ukraine Negotiates with Gazprom on Debts

· Ukrainian President Leonid Kuchma and Russian gas monopoly Gazprom chairman Rem Vyakhirev held a closed-door meeting to discuss Russia's curtailment of gas deliveries to Ukraine over unpaid debts. Beginning from July 21, Gazprom reduced its gas supplies to Ukraine's Unified Energy Systems corporation by 40 million cubic meters a day and to the Intergas company by 15 million cubic meters, to bring the daily total down to 52 million from 92 million cubic meters. On Tuesday, Ukraine received only 48 million cubic meters of gas.

In the past, Kiev has paid a portion of its gas debt to Gazprom with property and shares in Ukrainian gas enterprises and facilities.

Armenian President in Ukraine

· Ukrainian President Leonid Kuchma and his Armenian counterpart Levon Ter-Petrosyan signed a declaration on bilateral relations in Kiev on

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Politics-Economics-Business

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Thursday

July 24, 1997

Intercon's Daily

In related news, former British Foreign Secretary Malcolm RIFKIND has been appointed to the board of directors of Ramco, reported PA News. He begins work at the Aberdeen-based company in August.

South Caucasus & Central Asia

Turkmen Gas Pipeline Deal Signed

· Turkmenistan, Pakistan, US Unocal, and Saudi Arabia's Delta oil company signed an agreement in Islamabad Wednesday to build a gas pipeline from Turkmenistan, across Afghanistan, to Pakistan, reported Dow Jones. The agreement was signed by Turkmen Deputy Prime Minister Batyr SARZHAEV, Pakistani Oil and Natural Resources Minister Chaudhury Nassar Ali KHAN, and officials from Unocal and Delta. The Pakistan minister said the project will "transform the state of the entire region" and would set a trend for future projects involving telecommunications, electricity, transport infrastructure, and oil supplies from Central Asian for South Asian market.

Under the agreement, a consortium is to be formed by October 1997, which will start construction work on the gas pipeline by December 1998. The work is to be completed by 2001. The 1,464-km pipeline will run from Daulatabad gas field in southeastern Turkmenistan to the southern Pakistani city of Multan, with about 740 km of it crossing through Afghanistan. It may later be extended to New Dehli.

Sony to Assemble TVs in Uzbekistan

· Japan's Sony Corp. said today that its sales agents would begin to assemble color televisions in Uzbekistan in the next few months, reported Reuters. Sony plans to export cathode-ray tubes from its plant in Britain and other parts from its factory in Germany to its sales agent in Tashkent.

Assembly will start in August or September with output expected to reach 20,000 units by March 1998. Production could increase further to 50,000 units in 1999.

Sony said that it wants to produce color TVs in Uzbekistan because of the large demand their and because import tariffs on parts are much lower than on assembled TVs.

Kyrgyz GDP Growth in H1

· The gross domestic product (GDP) of Kyrgyzstan increased by 6.8 percent in the first half of this year, compared with the same period last year, reaching 9.377 billion soms (about $538 million), reported Xinhua. Industrial output totaled about $416 million during the period, up 28.8 percent from the first half of 1996. Agricultural output also rose slightly.

Total foreign trade, however, decreased by 15 percent from the same period last year to $339 million with imports declining 31 percent and exports falling 12 percent. Kyrgyzstan's main exports include foodstuffs, textiles, and mineral products. The bulk of imports are energy, machinery, and chemicals.

Kazakh GDP Grows 1.6 Percent

· Kazakhstan's gross domestic product (GDP) grew by 1.6 percent in the first six months this year, compared with the same period last year, reported Xinhua, citing a government spokesman. The country's industrial and agricultural output in the January-June period increased 2.8 and 0.3 percent, respectively from the same period last year.

Kazakh Foreign Min. in South Africa

· Kazakh Foreign Minister Kasymzhomart Tokayev and his South African counterpart Alfred Nzo in Pretoria signed a protocol on consultations aimed at promoting greater economic and political cooperation, reported Itar-Tass on Tuesday. Pretoria plans to open a permanent diplomatic mission in Almaty, said NZO.

Tokayev, who arrived Monday for a four-day official visit, also held talks with South African President Nelson Mandela, during which the possibility of an official visit to South Africa by Kazakh President Nursultan Nazarbayev was raised.

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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