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 3, 1997

the appointment of a new governor seems only to be exacerbating the region's problems. Russian independent television NTV reported today that negotiations between local authorities and the Kuzbass strike organization committee have broken down and the committee is planning a major protest action. Two coal mines are already holding hunger strikes.

A majority of the region's organizations have agreed to take part in a new strike action that will demand the resignation of the YELTSIN government and a change in the course of reforms, according to NTV.

Meanwhile, the deputy head of the Kemerovo regional administration and the head of the region's largest newspaper have offered their resignations, following President Boris YELTSIN's appointment of Minister for CIS Affairs Aman TULEEV as the region's new governor.

Also today, a deputy to former Kemerovo governor Mikhail KISLYUK was attacked in Moscow and is in a hospital intensive care unit suffering head injuries and four stab wounds in the back, reported Russian television RTV. Dmitry CHIRKADZE, who was in charge of industry, transport, and communications for the region, was set upon by two assailants in a Moscow suburb as he left the home of relatives.

One theory on the reason for the attack is CHIRKADZE's recent appointment to head the creditors board of the financially-troubled Western Siberian Metallurgical Plant, said RTV.

Russian Federation

Politics

Russia-Azerbaijan Sign Friendship Treaty

· Presidents Boris Yeltsin of Russia and Geidar Aliyev of Azerbaijan signed a Treaty of Friendship, Cooperation, and Security in the Kremlin today in a move to improve bilateral relations and regional security. The 12-page document envisions joint measures to maintain security, combat organized and international crime, and settle regional conflicts. The Treaty also specifies principles for economic cooperation particularly in relation to the processing, use, and export of oil and natural gas.

In addition, YELTSIN promised that Russia would undertake a serious effort to find a settlement to the Nagorno-Karabakh conflict. The Russian president also assured ALIYEV that he had ordered a special government commission on the deputy prime ministerial level to investigate the question of illegal arms exports to Armenia during 1994-96.

Also today, Russia and Azerbaijan signed agreements on cooperation and mutual assistance in currency and export control, on avoiding double taxation, and on visa-free travel.

Russian oil company Lukoil president Vagit Alekperov and the president of the Azeri state oil company SOCAR Natik Aliyev signed an agreement on the prospecting, development, and division of output of the D-222 oilfield in the Caspian Sea. The oilfield, called Yalama, is situated some 300 kms north of Baku and has estimated oil reserves of about 50 million tons.

Problems in Kemerovo Oblast

· Labor unrest in the Kuzbass coal basin of Siberia's Kemerovo Oblast worsened this week and

Today's News Highlights

Russia

June Inflation at 1.1 Percent

Chernomyrdin Says GDP Up

Oil Field Tender Planned

Capital Alliance-SBS Agro Deal

S&P's Rates Rossiisky Kredit

European Republics

Acting Ukraine Premier Named

South Caucasus & Central Asia

Greek-Kazakh Oil Cooperation

New Kyrgyz Foreign Minister

Politics-Economics-Business

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Thursday

July 3, 1997

Intercon's Daily

New Justice Min. Outlines Plans

· Newly appointed Justice Minister Sergei Stepashin said he will start in his new job by restructuring the ministry and launching large-scale reforms. "We have joined the Council of Europe and have to bring our laws and the practice of their application in line with European norms," he told Itar-Tass on Wednesday. However, he noted that this is a long process which may take 10-15 years.

Economy

Ruble = 5,782/$1.00 (NY rate)

Ruble = 5,782/$1.00 (CB rate)

Ruble = 5,772|5,792/$1.00 (buy|sell rates)

Monthly Inflation Hits 1.1 Percent in June

· According to Russia's State Statistics Committee, consumer prices in Russia in June rose by 1.1 percent, up from one percent in April and 0.9 percent in May. Prices for food grew by 1.5 percent, consumer goods prices rose 0.5 percent, and services went up by one percent.

Chernomyrdin Claims Economy is Growing

· Russian Prime Minister Viktor Chernomyrdin announced on Wednesday that Russia's gross domestic product (GDP) rose by more than one percent in the first half of 1997, compared with January-June 1996, reported the Associated Press (AP). The State Statistics Committee has said that GDP fell by 0.2 percent in the first five months of this year, but has not yet released data for June.

The premier's optimistic figure is likely to be met with skepticism by both Russian and foreign analysts. The Russian government itself has predicted that the economy will likely break even this year at best and at worst will contract by about two percent. Other views are more pessimistic, although a recently

released UN report forecast that Russian GDP will grow by one percent this year.

Svyazinvest Telecom Woos Investors

· Nail Ismailov, general director of Russian telecommunications holding company Svyazinvest, gave a presentation on Wednesday for potential participants in the auction for 25 percent of the company's shares, reported Prime-Tass. The initial price of the stake to be auctioned is $1.18 billion.

Ismailov said that the completion of Svyazinvest's investment programs will increase the number of telephone subscribers in cities and towns by 1.6-1.7 times to 80-85 telephones per 100 families, and in rural areas by 2.5-2.8 times to 50-55 telephones.

Attendees at the presentation ceremony included Italy's Stet, France Telecom, Deutsche Telecom, Morgan Stanley, Deutsche Morgan Grenfell, Dresdner Kleinwort Benson, Uneksimbank, Alfa-bank, Most bank, Troika Dialogue, Renaissance Capital, Brunswick, as well as Germany's Siemens and other Western telecommunications equipment producers.

The presentation was organized by the Russian Federal Property Fund and the Federal Stock Corp.

Major Northern Oil Tender Planned

· Russia's far northern Khanti-Mansi autonomous district and the Russian Natural Resources Ministry have announced a sixth tender for the right to prospect for oil and develop promising oil and gas fields, reported Interfax. The region accounts for 65 percent of Russia's total oil production.

Russian companies will be able to bid in a closed auction for 14 blocks, totaling over 5,000 sq. kms. Foreign companies can join the bidding for an additional 13 blocks, comprising over 8,000 sq. kms, with reserves of 107.2 million to 228.5 million tons of oil.

The tender will be managed by Tenderresurs, a state company which managed the first, third, and fifth tender in the district.

The closed auction will take place on October 21. Applications for participation will be received until October 10. The results of the open competition will be announced on April 14, 1998.

When you need to know it as it happens

Politics-Economics-Business

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Thursday

July 3, 1997

Intercon's Daily

Business

Alliance Capital-SBS Agro Form JV

· New York-based Alliance Capital Management L.P. and Russian commercial bank SBS-Agro Bank have agreed to form a joint venture company to provide investment management services and mutual funds to institutional and individual investors in Russia, said an Alliance press release. The new company, Alliance SBS-Agro Capital Management Inc., will be owned 51 percent by SBS-Agro and 49 percent by Alliance. The Moscow-based joint venture company, the first between an American asset management firm and a Russian bank, is expected to begin operations in October.

"We look forward to offering Russian citizens and institutions access to more financial services and products in cooperation with SBS-Agro. As Russia's largest private bank, SBS-Agro has a track record of growth and innovation that will contribute to an outstanding partnership," said Alliance Chairman and CEO Dave Williams.

SBS-Agro's 1,300 branch offices throughout Russia will serve as a distribution system for the financial services and products available through the joint venture company. In addition to its retail banking activity, SBS-Agro is active in securities trading, investment operations and commercial lending. SBS-Agro, founded in 1989, has one of the country's most advanced information technology systems and controls Russia's largest automated teller machine network with more than 150 member banks.

Alliance Capital currently manages approximately $2 billion in Russian securities, primarily bonds, for its institutional and mutual fund clients. Williams said that Alliance's association with SBS-Agro would add to its knowledge base and management skills in the field of Russian bonds and equities.

Alliance Capital Management L.P. is a leading global asset manager with $194 billion under management. Alliance provides services to pension funds, endowments, insurance companies, banks and other institutions as well as to individual investors through 136 mutual funds and cash management products which are distributed through broker/dealers, financial advisers, banks and insurance

companies. Alliance serves clients worldwide through offices in Australia, Bahrain, Brazil, Canada, France, India, Japan, Luxembourg, Poland, Singapore, Spain, Turkey, the UK, and the US.

S&P's Rates Rossiisky Kredit

· Standard & Poor's on Wednesday has assigned its single-'B' long-term counterparty rating and single-'B' short-term counterparty rating to Rossiisky Kredit Bank, said Standard & Poor's CreditWire. The outlook is stable.

As one of the important banks in the Russian system, Rossiisky Kredit has developed a franchise among the steel and wood processing industries, which are owned by related entities. The bank provides these entities with financing and a variety of financial services, which include accessing Western funds for restructuring the industries. This characteristic, however, comes at the cost of large concentrations of exposure to related entities. To diversify, the bank has become a leader in trade finance and is developing its business of serving municipalities and retail clients. To this end, it is making heavy investments in expanding its branch network. This has detracted from profitability, but should yield results over the long term.

Despite these strengths, the bank has more of its capital committed to funding investments that are not publicly traded than some other Russian banks. It also displays many of the other characteristics of the risks inherent in the Russian banking system in its reliance on wholesale funding, and a short track record of performance; experienced bank management is very scarce in Russia, as it is in other transition economies.

Profitability for Rossiisky Kredit and other Russian banks over this year and next should be under pressure from falling interest rates on government bonds. Provisioning costs also should remain high because of the relatively high level of problem loans. However, Rossiisky Kredit should be able to develop its client franchise among industrial and public sector clients. It is also making strides in developing managerial organization and its systems infrastructure. Capital should improve over the next year through planned sales of shares and slower balance sheet growth, said S&P.

When you need to know it as it happens

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Thursday

July 3, 1997

Intercon's Daily

European Republics

IGC on NIS Grain Production

· The London-based International Grains Council's latest 1997-98 world grain production forecasts released today show world wheat production at 579 million metric tons (MMT), down three MMT from 1996-97, reported Futures World News (FWN). The forecasts have been raised for Kazakhstan, Uzbekistan, India and the US, but cut for Canada, said the IGC.

The latest forecast for the former Soviet Union (FSU) is 70.4 MMT (64.4 MMT in 1996-97). The breakdown of the FSU figure includes Russia—34.0 MMT (34.9 MMT in 1996-97); Ukraine—17.0 MMT (13.4 MMT); and Kazakhstan—10.5 MMT (8.0 MMT).

The IGC's latest 1997-98 coarse grain production figures (with 1996-97 comparisons in parentheses) include Russia—33.5 MMT (33.0 MMT) and Ukraine—12.0 MMT (10.6 MMT).

Acting Ukrainian Prime Minister Named

· Ukrainian President Leonid Kuchma on Wednesday appointed Deputy Prime Minister Vasily Durdinets as acting premier, reported Itar-Tass.

DURDINETS will take over for Pavel Lazarenko whose resignation was accepted on Wednesday. Kuchma also ordered the Cabinet to continue performing its duties until a new prime minister can be approved.

Swiss Bank to Manage Litho. Telecom Tender

· The Lithuanian Ministry for European Affairs said today that the Union Bank of Switzerland (UBS) has won a tender to act as lead advisor in the privatization of Lithuanian Telecom, reported Reuters. The Lithuanian government plans to sell off 100 percent of the state telephone company next year.

Lithuania has pledged to sell the government's stakes in 13 major state companies.

South Caucasus & Central Asia

Greece Wants Oil Cooperation with Kazakhstan

· Following a meeting with Kazakh President Nursultan NAZARBAYEV today, Greek Foreign Minister Theodore PANGALOS said that his country was seeking closer economic cooperation with Kazakhstan, particularly with its oil and gas industries, reported Reuters. "We are interested in productive cooperation which will be mutually profitable," the minister is quoted as saying. "Greece is buying important volumes of gas from Kazakhstan and we shall also buy oil."

During his two-day official visit to Kazakhstan, PANGALOS also discussed Greece's role in a proposed pipeline from the Russian port of Novorossiisk to the Bulgarian Black Sea port of Bourgas and through Greece to the Mediterranean.

The pipeline will act as an extension to a planned pipeline from the Tengiz oilfields in Kazakhstan to Novorossiisk, which is being built by the Caspian Pipeline Consortium (CPC), a group composed of the governments of Oman, Russia, and Kazakhstan and eight large international oil companies. The CPC pipeline is due to be completed by 1999.

Trade turnover between Greece and Kazakhstan reached $16.5 million in 1996, up from $4.26 million in 1995.

New Kyrgyz Foreign Minister

· Kyrgyz President Askar Akayev has appointed Muratbek Imanaliyev as the country's foreign minister, reported Xinhua. Prior to the appointment, IMANALIYEV was head of the International Department of the presidential administration and previously served as ambassador to China and foreign minister (1990-91). He replaces Roza Otunbayeva who was named as Kyrgyzstan's ambassador to Great Britain.

Daily Report on Russia & the FSU will not be published on

Friday, July 4, 1997, in observance of Independence Day.

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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