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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, July 25, 1997

Russian Federation


Yeltsin Defends Religion, Military Decisions

· In a radio address to the nation today, Russian President Boris YELTSIN defended his decision to veto a law on religion that restricted the activities of many religious organizations, while raising the status of the Orthodox Church. He also addressed the newly-announced government military reform program, proclaiming his resolve to move forward with reform efforts, noting criticism of the reform plan, and explaining specific segments of the program.

Yeltsin noted that the religion bill was supported by both houses of parliament and the Russian Orthodox Church, but he said "as Russian president I should monitor that laws adopted in the country should not run counter to the Constitution and international treaties of the Russian Federation. …The democratic state may not infringe on the interests of minorities, no matter what noble interests are cited." The president said he had sent an amended version of the law to the State Duma. "I call on deputies to treat the present situation with understanding and to support my position," he said.

Noting that critics of his military reform have argued that the country's economic situation should improve before reforms are started, Yeltsin said: "I understand that these critics, most of them, are seriously concerned over the destiny of the Russian army and navy. …However, those who call for not dragging feet with the military reform, feel no less keenly about the future of the Armed Forces. Sure, it would be better to have a more favorable financial situation to implement the reform. But we cannot wait any longer."

YELTSIN promised that one of the most "burning" problems facing the military, the shortage of housing,

would be seriously addressed and that purchasing homes for the some 97,000 servicemen and their families that lack their own apartment will be a top priority for the government.

Volsky Named to Head Russo-Chinese Cttee

· Russian President Boris Yeltsin has appointed Arkady Volsky to be co-chairman of the Russo-Chinese Committee for Friendship, Peace, and Development of the 21st Century, said the presidential press service on Thursday. Volsky is head of the Russian Union of Industrialists and Entrepreneurs.

Working Group on Plutonium Formed

· Russian President Boris Yeltsin on Thursday issued a decree ordering the formation of a working group to consider how to reduce the country's stockpiles of weapons-grade plutonium, said the presidential press service. The group is to submit proposals on the surplus plutonium by October 15. The group will be headed by Yevgeny Velikhov, a member of the Russian Defense Council and head of the Russia's Kurchatov nuclear research institute.


New Decree Permits Gold Exports

· Russian President Boris Yeltsin signed a long-awaited decree Thursday allowing authorized Russian banks to export gold and silver bars, beginning on October 1, reported Reuters. The Central Bank is also allowed to export gold and silver, but exports from

Today's News Highlights


Yeltsin to Veto Land Code

Svyazinvest Tender Winner

Market to Open for WTO

Spain in High-Speed Rail Deal

European Republics

Belarus Hires Price Waterhouse

Kuchma Reshuffles Government

South Caucasus & Central Asia

Aliyev to Sign 3 Oil Deals in US

World Bank Loan for Azerbaijan




July 25, 1997

Intercon's Daily

Ruble = 5,790/$1.00 (NY rate)

Ruble = 5,794/$1.00 (CB rate)

Ruble = 5,785|5,803/$1.00 (buy|sell rates)

that he will not sign the Land Code, recently approved by the parliament, because it does not allow the purchase and sale of agricultural land, reported Itar-Tass. Speaking to reporters following visits to several individual farms in the Samara Region, YELTSIN asked: "The whole world is working like that. What are we afraid of?"

The president stressed that he was rejecting the argument that the right to purchase and sell land would lead to "the plundering of Russia." The code will go to a conciliatory commission for redrafting, but YELTSIN's remarks are unlikely to overcome the opposition by a number of parliamentary factions to the sale of farmland.

Russia to Open Markets for WTO

· On Tuesday, a Russian official told the World Trade Organization (WTO) that it would put forward plans to open its markets to foreign competition by the end of the year, reported Wednesday's Financial Times. Speaking to an informal meeting of the WTO membership working party, Deputy Trade Minister Georgy GABUNIA said Moscow intended to submit an offer on market access for foreign goods, including agricultural products, in the autumn, and on the liberalization of services toward the end of the year.

Trade officials cited by the FT said that improving access for foreign agricultural imports and opening up the services sector, particularly financial services, will be the most difficult areas for Russia. In order to join the WTO, Russia must negotiate a package of market-opening measures with all its main trading partners on a bilateral basis. This process cannot begin until Russia submits detailed offers, on an item-by-item basis.

Moscow to Retain Control of Rosneft

· First Deputy Fuel and Energy Minister Sergei Kiriyenko told reporters on Thursday that the Russian government will retain a controlling interest in state oil holding company Rosneft, reported Itar-Tass. He said that First Deputy Prime Minister Boris Nemtsov had ordered the Ministry to draft a privatization plan for the company to be discussed at a meeting of Rosneft's board of directors, scheduled for Monday.

Under the plan, the state would keep 51 percent of the company's stock, said Kiriyenko. Another two

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the Russian state fund of precious metals and stones (Goskhran) would require a separate decision by the president.

The order is aimed at attracting investment to the country's ailing gold mining sector and increasing production. Commercial banks had insisted that they would not invest in the sector unless the domestic gold market was liberalized and exports allowed.

The Russian Central Bank currently holds gold reserves of 403-404 tons, Prime-Tass quoted Central Bank precious metals department head Sergei KYSHTYMOV as saying today. He said that the Bank had purchased 5.25 tons from commercial banks so far this year and expects to buy about the same amount in the second half of the year.

Tax Imposed on Foreign Currency Purchases

· Russian President Boris Yeltsin has signed a law imposing a 0.5 percent tax on purchases of foreign currency, reported Interfax. Specifically, the tax will be levied on the closure of ruble deposits, if they are paid out in foreign currencies. It will not apply to funds withdrawn from foreign currency accounts and paid in cash.

Both individuals and enterprises are subject to the tax, as are the branches and representative offices of foreign firms. However, 100-percent state organizations are exempt from the tax.

Yeltsin Plans to Veto Land Code

· Russian President Boris Yeltsin said Thursday

When you need to know it as it happens




July 25, 1997

Intercon's Daily

percent will be transferred to the company's employees and the remaining 47 percent will be auctioned off in a single block.

In 1996, Rosneft produced 13.1 million tons of oil, processed 4.8 million, and exported 5.8 million.


Interros/Deutsche Win Svyazinvest Tender

· A consortium including Russian financial group Interros and Deutsche Bank AG has won a tender for a 25 percent stake in Russian telecommunications holding company Svyazinvest with a bid of $1.8 billion, reported Dow Jones. Interros, which includes MFK bank, Renaissance Capital investment firm, and various metals and energy companies, is controlled by commercial bank Oneximbank.

The losing bid, placed by a consortium led by Russia's Alfa Bank, was $1.71 billion. The minimum bid for the stake was set at $1.18 billion. The successful tender represents the biggest sell-off in Russian history.

Spanish Firm to Design High-Speed Rail

· Russian high-speed railway company Vysokoskorostnye Magistrali has awarded Spain's Ineco a $16.65 million contract to design a rail line between Moscow and St. Petersburg, reported today's Journal of Commerce. The contract is being financed by Spain's Santander Bank.

Ineco will draft designs for the 750-km (465 mile) line for approval by the Russian company within two years. The Spanish company designed the high-speed rail line between Madrid and Seville.

US Repairing Russian Optics Products

· Middletown, R.I.-based Advanced International Technologies, Inc. (INTERTECH) announced on Wednesday the establishment of a repair facility in the US for night vision devices produced in Russia, said an INTERTECH press release. The facility was inaugurated on July 1, 1997, in Middletown, R.I. This service center is expected to benefit from the robust sales of night vision products in the consumer market for the past several years, it said.

In the past several years, night vision has become an increasingly larger niche in the optics market. Due to

the comparative cost advantage of certain Russian night vision devices, the US market has absorbed upwards of 200,000 night vision devices in the consumer, outdoors, and marine markets. Depending upon retail price point, these devices have been sold by various mass merchants, mail order catalogues, and specialty value added resellers. In order to maximize the potential use, service life, and value to the owners of these units, INTERTECH's facility will be able to accommodate all service requests for over 120 different night vision units.

European Republics

Belarus Hires Price Waterhouse As Advisor

· The government of Belarus has selected Price Waterhouse as its official financial advisor for a broad range of economic development programs including the potential privatization of Belarus Telecom and leading companies in the automotive, aviation, heavy equipment manufacturing, chemical, and oil industries, said a Price Waterhouse press release. A memorandum of understanding was recently signed by Belarus First Deputy Prime Minister Pyotr Prokopovich and Price Waterhouse partner James A. Waddell.

Price Waterhouse will provide the Belarus government with financial advisory services to support privatization of large and medium-sized enterprises, financing of infrastructure projects and defense conversion ventures, as well as fundraising, audit, and accounting services.

"We greatly appreciate the Price Waterhouse commitment to helping us strengthen our economy and the understanding they have demonstrated about our national goals," said Belarus Ambassador to the US Valery Tsepkalo. "The firm has a track record of success with complex economic development and privatization programs. …with Price Waterhouse as our advisor, we will be able to develop our country to meet the needs of our citizens."

Ukrainian Government Reshuffle

· Ukrainian President Leonid KUCHMA signed a series of decree today reshuffling the government following the appointment of a new prime minister on July 16, reported Reuters. In a major shake-up, KUCHMA replaced ministers in charge of the economy, industry, and energy agencies.

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July 25, 1997

Intercon's Daily

Viktor SUSLOV, chairman of the parliamentary banking and finance committee was appointed Finance Minister, replacing Yuri YEKHANUROV.

Yuri KARASYK was made Agriculture Minister, a post he has held in the past, replacing Mikhail ZUBETS.

Aleksei SHEBERSTOV was named Energy Minister, replacing Yuri BOCHKARYOV, and Stanislav YANKO was made Coal Minister, replacing Yuri RUSANTSOV. Both men had held the post before.

Valery MAZUR was dismissed as Industry Minister, and KUCHMA set up a new Ministry of Industrial Policy and named former defense industry minister Vasily GUREYEV to head it.

KUCHMA declared that the changes will help accelerate economic reform, but in the past the president's frequent attempts to spur reform through personnel changes have had little effect.

Fountain Oil Signs Ukraine Sales Deal

· US Fountain Oil Inc. announced on Thursday that its 40.5 percent-owned affiliate, Kashtan Petroleum Ltd., has signed an oil sales agreement with Ukrainian state trading company Neftekhimik for the sale of oil and condensate initially produced from the Lelyaki field, said a company press release. Under the agreement, Kashtan has secured the sale of all 1997 production from the Lelyaki field up to a maximum of 30,500 tons of crude oil.

Agribusiness Seminar at Yale

· Twenty-six leading scholars from the Ukraine, Russia, the Czech Republic, Hungary, and Poland are gathering at Yale University for a seminar on land reform, agricultural innovation, and financial system reform at the Yale Center for International and Area Studies (YCIAS) from July 20_August 2, reported M2 Communications. The conference, "Economic Policy for the Agribusiness Sector in the Transition Economies," will promote an exchange of ideas among

scholars with experience in both market and transition economies, with the goal of improving policy and investment environments in ex-Communist states.

South Caucasus & Central Asia

Three US-Azeri Oil Deals Expected

· Azeri President Geidar ALIYEV expects to sign three contracts with US oil companies during this visit to the US next week, reported Dow Jones. ALIYEV arrives on Sunday.

Azeri state oil company SOCAR official Davud YAGUBOV told Interfax Petroleum Information Agency on Thursday that the contracts, with Mobil, Exxon, and Chevron, will open up oil and gas development on the Caspian Sea shelf. SOCAR will hold a 50 percent stake in all three projects.

World Bank Loan for Azerbaijan

· The World Bank on Thursday approved a $70 million Structural Adjustment Credit to help strengthen the government's economic reform program in Azerbaijan, said a Bank press release. The credit, which will be financed by funds from the International Development Association (IDA), will support the country's economic recovery while helping to introduce greater competition and flexibility to the economy, and to set the stage for the further development of the private sector, especially in the non-oil sectors.

The Structural Adjustment Credit will help the Azeri government to: (1) open the domestic markets to competition by establishing a non-discriminatory trade region; (2) reduce the role of the state in economic and commercial activities by reorganizing the public sector (ministries, agencies, etc.), and by accelerating the privatization program; (3) undertake financial sector reforms to establish a sound private banking system, including the restructuring of state-owed banks; and (4) mitigate the impact of residential utility price increases on the poor by establishing a compensation system.

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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