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

Monday, July 28, 1997

Russian Federation

Politics

Zyuganov Says Duma Will OK Religion Bill

· Russian Communist Party leader Gennady ZYUGANOV said on Saturday that the State Duma would overturn the presidential veto of a controversial law on religion that the president deemed unconstitutional, reported Reuters. ZYUGANOV said the veto of the religion bill and the Land Code last week showed that President Boris YELTSIN had "begun a new stage in his campaign against Russia."

Unlike the popular religion bill, ZYUGANOV admitted it would be difficult to garner enough votes in parliament to overturn the veto on the Land Code, but he vowed that the Communists would prevent any attempt to allow the sale of farmland. "The president has already sold off two thirds of the country, with two rounds of privatization. Now, by preparing a third division of property, he wants to deal even in land, but we won't let this pass," said ZYUGANOV.

He also warned that Russian leftist forces were organizing a general protest action for the fall.

Nemtsov to Cut Bureaucracy to Save Money

· Russian First Deputy Prime Minister Boris Nemtsov said on Saturday that the government plans to cut the government bureaucracy by 10 percent, reported Interfax. Speaking during a telephone call-in session at Komsomolskaya Pravda newspaper, he said that about a quarter of the officials at the Ministry of Fuel and Energy, headed by Nemtsov himself, will be dismissed.

Nemtsov said reducing the bloated state bureaucracy would free up funds for "more burning needs" like the prompt payment of wages and pensions, as well as increase efficiency.

On Saturday, Nemtsov also said that army officers scheduled to be pensioned off or qualifying for housing assistance under the government's military reform plans would receive cash directly in their bank accounts to avoid the risk of money being siphoned off by officials.

Results of Irkutsk Gubernatorial Race

· The Moscow-backed mayor of Irkutsk Boris Govorin won Sunday's gubernatorial elections in eastern Siberia's Irkutsk Oblast with 50.34 percent of the vote, reported Itar-Tass. reported the Associated Press (AP), citing preliminary election results. The head of the regional Communist Party branch, Sergei Levchenko, received 18.8 percent of the vote. Viktor Mashinsky placed third with 14.02 percent, followed by Ivan Shchadov, a local businessman backed by Aleksandr Lebed's Popular Republican Party, who won 7.27 percent. Nine candidates competed for the post of regional leader.

About 43 percent of the 1.8 million electorate cast ballots by the time polls closed Sunday night. The election was necessitated when Yuri Nozhikov resigned as governor of the Irkutsk region for health reasons three months ago.

Courtney Named Pres. Advisor on Russia

· US National Security Advisor Samuel Berger on Friday announced today the appointment of William H. Courtney as special assistant to the president and senior director for Russia, Ukraine, and Eur

Today's News Highlights

Russia

Yeltsin Signs Privatization Law

Russian Aluminum Output in H1

Lukoil Opens Gas Station in US

Update on Svyazinvest

Japan in Irkutsk Gas Deal

South Caucasus & Central Asia

Georgia-Abkhazia Talks Over

German Loan for Armenia

Daewoo to Expand Uzbek Plant

Kazakh Deputy Premier Out

Politics-Economics-Business

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Monday

July 28, 1997

Intercon's Daily

This Week's Happenings

¨ Moscow Mayor Yuri Luzhkov arrived in Los Angeles on July 28 to participate in a US-Russia Economic Conference at the Beverly Hilton Hotel, Beverly Hills, Calif. The conference was organized by the Moscow Mayor's Office and the US-Russian Foundation for Progress and Cooperation.

¨ On July 28_29, Russian Foreign Minister Yevgeny Primakov will attend meetings with ASEAN member states in Kuala Lampur. The ASEAN-Russia dialogue will focus on prospects for further development of bilateral ties, including regular political consultations. Primakov will also meet US Secretary of State Madeleine Albright.

¨ Belgium Prime Minister Jean-Lue Dehaene is arriving for a two-day official visit in Ukraine on July 28_29. He will hold talks with Ukraine President Leonid Kuchma, Prime Minister Valery Pustovoitenko, and other top officials of the country.

¨ On July 29, Russian Foreign Minister Yevgeny Primakov will travel to Pattaya, a seaside resort, to meet with Thai Foreign Minister Prachuab Chaiyasarn. During the visit, Thailand and Russia will sign a treaty to avoid double taxation to mark 100 years of diplomatic relations between the two countries.

¨ German Foreign Minister Klaus Kinkel will visit Ukraine on July 29_30. Kinkel is to meet with President Leonid Kuchma, Foreign Minister Gennady Udovenko, and new Premier Valery Pustovoitenko.

¨ Azerbaijan's President Geidar ALIYEV will meet with his US counterpart Bill CLINTON on September 1 in Washington.

by the Threshold Test Ban and Peaceful Nuclear Explosions Treaties. Earlier, he served in the Nuclear and Space Talks in Geneva and at the American Embassies in Moscow and Brasilia. He was an international affairs fellow at the Council of Foreign Relations and since 1972 has been a career Foreign Service Officer.

Economy

Ruble = 6,001/$1.00 (NY rate)

Ruble = 5,795/$1.00 (CB rate)

Ruble = 5,786|5,804/$1.00 (buy|sell rates)

Yeltsin Signs Privatization Law

· Russian President Boris YELTSIN on Friday signed a law on privatization that requires the government to seek parliamentary approval for its annual privatization targets, reported Itar-Tass. Transfers of government stakes in major enterprises in exchange for bank credits (shares-for-loans program) are prohibited under the new law. It also says that the privatization of "strategically important enterprises" will require a federal law be passed.

The new law also allows the state to appropriate privatized property, if the new owner fails to meet investment requirements or other obligations under which the privatization contract was awarded.

Gas Explosion at Lukoil Building

· Rescue workers have dragged 30 people, including 11 dead and 19 injured, from under the debris of a building in Russia's Perm region west of the Urals, where an explosion occurred early today. The two-story building belongs to the Chernushkaneft branch of the Lukoil-Permneft oil company. It is believed that the building collapsed as a result of a gas explosion on the ground floor. Another ten people are estimated to be trapped in the wreckage.

Russian Aluminum Output Up in H1

· Russia produced 1.43 million tons of primary aluminum in the first six months of 1997, an increase of 0.1 percent over the first half of 1996, reported Reuters, citing the Kontsern Alyuminiy producers' group. Commonwealth of Independent States (CIS) producers Russia, Ukraine, and Tajikistan produced 1.57 million tons during January-June, down 0.5 percent from last year. Ukraine's primary aluminum output rose by 7.5 percent in the period to 48,6000,

asian Affairs, effective August 25, said a White House press release. Ambassador Courtney will succeed Steve Pifer.

Courtney has been Ambassador to Georgia since 1995. Prior to that, he was ambassador to Kazakhstan, co-chair of the US delegation on Safety, Security, and Dismantlement of Nuclear Weapons, and head of the US delegation, with rank of ambassador, to the implementing commissions established

When you need to know it as it happens

Politics-Economics-Business

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Monday

July 28, 1997

Intercon's Daily

Lukoil USA, Inc., the North American subsidiary of Lukoil, oversees marketing of Lukoil products and services throughout the Americas. Lukoil USA is a majority owner of Nexus Fuels Inc. Lukoil USA is also pursuing exploration and oil production opportunities in North and South America.

Update of Svyazinvest Tender Winner

· The tender for a 25 percent stake in Russian telecommunications holding company Svyazinvest was won by a consortium of Russian and foreign banks, including a Cyprus-based company that represents several major international investors, said Dow Jones today. In a press release, Russia's MFK bank said that the Cyprus company Mustcom Ltd., through which the winning bid was placed, represents Deutsche Morgan Grenfell and Morgan Stanley and George SOROS' Quantum funds.

The MFK release did not provide details of each participants shares in the deal, but said that the Russian side, led by the Oneximbank group, has voting control of Mustcom. MFK is represented in the company by its Cypriot subsidiary and the Moscow investment firm Renaissance Capital, which is also part of the Oneximbank financial group, also holds a stake in Mustcom.

According to the weekend edition of the Financial Times, the winning consortium will be able to nominate two directors to serve on Svyazinvest's board, giving it the power of veto, and is free to sell its stake after 75 days.

Japan to Invest in Irkutsk Gas Deal

· The Japanese government will help develop a natural gas field in the eastern Siberia in line with Prime Minister Ryutaro Hashimoto's goal of furthering ties with Moscow, reported Kyoto news today. Tokyo will shortly propose to the Russian government holding an October meeting of a Japan-Russia economics and trade subcommittee to exchange views on how to support the private sector gas development project, said the Nihon Keizai Shimbun.

The gas field, some 400 kilometers north of Irkutsk, is estimated to have 850 billion cubic meters in reserves, more than 10 times Japan's annual natural gas consumption, said the newspaper.

while Tajikistan's output fell by 11.1 percent to 90,900 tons.

Moscow to Make $500 Mln Eurobond Issue

· The Moscow city government plans to issue another $500 million worth of Eurobonds before the end of this year, reported Interfax. The city placed $500 million worth of Eurobonds earlier this year.

A tender for the right to lead manage the bond sales will be held for banks and financial institutions before August 1, said Moscow municipal bond and stock market committee chairman Mechislav KLIMOVICH. The Eurobonds could be placed as early as this fall.

Business

Lukoil Opens First US Gas Station

· Russian oil conglomerate Lukoil opened its first US gas station today at the Food Lion supermarket in Altavista, Virginia, said a Lukoil press release. Lukoil President Vagit ALEKPEROV is in New York today to celebrate the opening of his company's first US filling station, which represents the first large-scale Russian investment in a consumer-retail enterprise in the US, said the release. Lukoil plans to open additional stations at select shopping centers and supermarkets through the US.

Irving, Texas-based Nexus Fuels, Lukoil's affiliate in the US, will oversee the construction and operation of the Virginia facility and other future Lukoil filling stations in the US. In 1997, Lukoil entered into a partnership agreement to develop gas stations at supermarkets around the country, said the press release. The stations are located in the parking lots of the supermarkets, and both the grocer and Nexus Fuels will offer incentives for customers to purchase both their gas and groceries at the one location.

Nexus is negotiating deals with Food Lion, Richfoods, Shaws Supermarkets, and Supervalu which will give it access to 5,000 sites next door to markets.

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When you need to know it as it happens

Politics-Economics-Business

Monday

July 28, 1997

Intercon's Daily

Two Russian companies involved in the project want to begin producing gas in 1999 in cooperation with firms in neighboring countries, eventually forming an international consortium to transport gas to China, South Korea, and Japan, the paper said.

Dow Jones reported today that the Japan National Oil Co. has urged the Russian and Chinese governments to hold talks on conducting a feasibility study on Russia's proposal to build a pipeline to transport the Irkutsk gas to its Asian neighbors. A Japanese government officials told Dow Jones that representatives of Japan National, Russian Fuel and Energy Ministry, Siberian and Far East Oil Company, China National Petroleum Corp., and South Korea's state-run Korea Gas Corp. could hold their first meeting on the gas pipeline in early September.

opinion," he said it is more expedient to create a peace-making mechanism than to extend the Russian peacekeepers' mandate. He said it is necessary to work out such a mechanism to "exclude any possibility of the resumption of combat operations."

German Loan for Armenian Power

· The German government agreed on Friday to extend Armenia a DM 10 million (about $5.4 million) credit to finance the reconstruction of the Kanaker hydroelectric power station, reported RFE/RL Newsline. A second agreement worth DM15 million is scheduled to be signed in August.

Daewoo to Expand Uzbekistan Venture

· South Korea's Daewoo Electronics Co. Ltd. has announced plans to invest $3 million to expand a joint venture home appliance plant in Uzbekistan, reported United Press International (UPI) today. Daewoo spokesman Chung Jae-hyun said Daewoo will expand production lines for televisions and VCRs by the end of this month. Chung says production capacity for televisions will triple to 300,000 and that for video cassette recorders will double to 200,000.

Located in Tashkent, Daewoo and local partner Uzautoprom started operations at the plant in September 1993. Daewoo owns a 65 percent stake of the joint venture, which was capitalized at $88 million. The joint venture had sales of $100 million last year.

Kazakh Deputy Premier Dismissed

· Kazakh President Nursultan NAZARBAYEV today signed a decree removing Deputy Prime Minister Nigmatzhan ISINGARIN from his post, without giving a reason for the dismissal, reported Reuters. ISINGARIN is the third deputy premier to be removed in two months. In June, Deputy Premier Dyusenbai DUYSENOV was transferred to the position of Energy and Natural Resources Minister and, earlier this month, Deputy Prime Minister Zhanybek KARIBZHANOV was named Mayor of Akmola, the country's future capital. Prime Minister Akezhan KAZHEGELDIN now has four deputies

South Caucasus & Central Asia

Georgia-Abkhazia Agree Not to Fight

· During talks in Geneva on July 23_26, Georgia and Abkhazia could not agree on a final settlement, but they reaffirmed their commitment not to use force against each other and to continue talks, reported the Financial Times. UN special representative for Georgia Liviu Bota put a positive spin on the talks lack of progress, saying that the meeting had achieved its primary purpose which was to reduce the threat of renewed fighting when the mandate of the Russian peacekeeping troops in Abkhazia expires on July 31.

Georgian President Eduard Shevardnadze said Friday evening that the Georgian Security Council, in conjunction with the parliament leadership, will decision on Saturday whether Russian peacekeepers should remain in Abkhazia, reported Itar-Tass.

Georgian Foreign Minister Irakli MENGARISHIVILI said Saturday that a mechanism should be created in the conflict zone of Abkhazia to replace Russian peacekeepers, reported Xinhua. In what he described at a press conference as his "personal

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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When you need to know it as it happens

Politics-Economics-Business

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