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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, July 30, 1997

Yakovlev, former Foreign Minister Andrei Kozyrev, former chairman of the AllRussian State Television and Radio Company Oleg Poptsov, journalist Alla Gerber, and others. The session elected former presidential chief of staff Sergei Filatov as the organizing committee's president.

The group also apparently enjoys the support of Moscow Mayor Yuri LUZHKOV who, although not mentioned as a member of the organizing committee, allowed it to use his office for the meeting.

The Congress' mission is to use the tremendous creative potential of Russian intellectuals for national improvement, to fight negative trends, and promote the establishment of a democratic society and a socially oriented free-market economy.

Yeltsin to Talk w/Chechnya's Maskhadov

· Russian President Boris Yeltsin said today he would invite Chechen leader Aslan Maskhadov to Moscow to discuss the development of relations between the center and the republic, reported Itar-Tass. The two need to talk about the progress in restoring "Chechnya's public order, industry, economy and finance," as well as Maskhadov's "getting rid of extremists" from his administration.

Yeltsin said he would offer to prepare a power-sharing treaty between Moscow and Grozny, similar to the agreements that Moscow concluded with other Russian republics. However, the president said

Russian Federation


Yeltsin Threatens Belarus on TV Detentions

· Russian President Boris Yeltsin today lashed out at Belarus for the arrest of three Russian Public Television (ORT) journalists and threatened to reconsider the Russian-Belarus Union unless they are released. "I am indignant, and I want Belarussian President Aleksandr Lukashenko to give explanations," he is quoted by Interfax as saying. YELTSIN said he was sure the matter could be settled, but if not then: "Let us reconsider the charter and the agreement which we have signed."

One of the provisions of the Belarus-Russia union charter provides for the protection of press freedom. "We do not touch Belarus journalists," he added.

On Tuesday, ORT director Sergei Blagovolin sent YELTSIN a letter asking for his help in obtaining the release of the journalists. The ORT's Pavel Sheremet, Dmitry Zavadsky, and Vyachslav Ovchinnikov were detained on July 26 by Belarus police and are being held in a KGB prison in the town of Grodno. The crew was charged with illegally crossing the Belarus-Lithuanian border while shooting film. The ORT office in Minsk was reportedly searched after the arrests.

SHEREMET had his media accreditation revoked earlier this month by Belarussian authorities who accused him of biased reporting.

Russian Intellectuals Plan New Party

· A new public movement, the Russian Intellectuals' Congress, will hold its inaugural meeting in November, reported RIA Novosti. The group's organizing committee, which held its second session on Tuesday, includes Academician Aleksandr

Today's News Highlights


Svyazinvest Deal Signed

4,000 Firms Go Bankrupt

Upcoming Events

Battle for Control over KrAZ

European Republics

New Ukraine Government

Investment Projects in Ukraine

South Caucasus & Central Asia

Peacekeepers in Abkhazia

Uzbek Economy Growing




July 30, 1997

Intercon's Daily

that he is not prepared to consider the signing of a full-scale agreement with Chechnya along the lines of those signed with foreign countries.


Ruble = 5,807.5/$1.00 (NY rate)

Ruble = 5,797/$1.00 (CB rate)

Ruble = 5,788|5,806/$1.00 (buy|sell rates)

Svyazinvest Sales Deal Signed

· The Russian government and a representative of the consortium that won a tender for a 25 percent stake in telecommunications firm Svyazinvest last week signed the sales contract today, reported Dow Jones. Federal Property Fund chairman Igor LIPKIN signed for the government and Leonid ROZHETSKIN, managing director of Renaissance Capital, signed for the consortium.

The winning bid of $1.875 was placed by Oneximbank, a leading Russian commercial bank affiliated with Renaissance Capital, George SOROS' Quantum funds, Deutsche Morgan Grenfell, and Morgan Stanley. The only other bidder for the stake was an investment group consisting of Russia's Alfa Bank and Most Bank, Spain's Telefonica, and Credit Suisse First Boston.

Today's signing shows the Russian government's determination to stand by the tender results, despite a wave of protest that has erupted in the media. Russian Public Television (ORT) and several media organizations belonging to Vladimir GUSINSKY's Media-Most group—including NTV, Segodnya, and Ekho Moskvy radio—have sharply criticized the Svyazinvest tender and First Deputy Prime Minister Boris NEMTSOV. Nezavisimaya Gazeta, which is financed by Boris BEREZOVSKY's LogoVAZ group—which also controls ORT, has published articles harshly critical of NEMTSOV during the last week.

NEMTSOV fired back against his detractors today, insisting that the Svyazinvest tender was an "honest" auction and noting: "I am not going to serve the interests of these financial and industrial groups," according to Itar-Tass. Speaking to reporters in Chuvashia, Nemtsov accused the owners of the NTV and ORT television networks of expecting to buy the Svyazinvest stake on the cheap and being unable to accept that they lost a fair auction. "This

has not happened, the government has proclaimed a course of having no more free privatization or privatization based on pulling strings," he said. "The winner is the one who pays most." According to Nemtsov, when he joined the government, he and Yeltsin agreed that "there will be no bandit capitalism or Latin American variant in Russia."

Moreover, in an interview with Komsomolskaya Pravda, NEMTSOV suggested that Russia's major financial groups are in danger of destabilizing the government and strengthening the political opposition, said today's Financial Times. "The interests of some finance-media groups could merge with the interests of the communists and the fascists."

Urinson Estimates 4,000 Bankruptcies

· Russian Economy Minister Yakov URINSON told a World Economic Forum meeting in Salzburg that 4,000 Russian enterprises have been declared bankrupt in the first six months of this year, reported today's Journal of Commerce. URINSON attributed the bankruptcies to the ongoing nonpayments crisis. He said that the Russian government was trying to save some enterprises by lowering interest rates and creating conditions for cheap loans.

Upcoming Events

How to Master the Art of Doing Business in Russia

September 29_30, 1997

Park Lane Hotel, New York City

Organized by: Insight Information Inc.

Conference Chairmen:

Jeffrey A. Burt, Partner,

Arnold & Porter (Washington, DC)

John I. Huhs, Partner and Chairman,

Int'l Dept., LeBoeuf, Lamb, Green & MacRae

(Moscow & New York)

Speakers include:

Patricia A. Moore, General Counsel,

Caspian Pipeline Consortium (Moscow)

Ambassador Richard L. Morningstar,

Special Advisor to the President & Secretary of State

on Assistance to the New Independent States

Info: Insight Information

Tel: 416-777-2020 or 1-888-777-1707;

Fax: 416-777-1292

When you need to know it as it happens




July 30, 1997

Intercon's Daily


Battle for Control of KrAZ Over?

· During a board of directors meeting of the Russia's Krasnoyarsk aluminum plant KrAZ last week plant director Yuri KOLPAKOV unsuccessfully tried to force some members of the board out of Krasnoyarsk with the help of armed guards, reported Itar-Tass. Shareholders, including Britain's TransWorld Group, had accused KOLPAKOV of incompetence and the board meeting was called to decide whether to dismiss him. His power play failed and he was fired, handing a victory to outside shareholders in their long battle with company management for control over KrAZ.

Also at the meeting, the company's acting general director Igor Vishnevsky resigned and board member Gennady Druzhinin became the plant's new general director. Following the board meeting, DRUZHININ told reporters that "the protracted aluminum war will now stop."

On top of this, Interfax reported today that a group of Russian banks and foreign investors led by Rosissky Kredit bank has acquired more than 47 percent of the shares of KrAZ. It is unclear from whom this stake was purchased. A bank source told Interfax that the group hopes "to make its [KrAZ] business more transparent for the government and act as the guarantor of the rights of strategic partners and portfolio investors."

Meanwhile, foreign shareholders continue to battle with management over control of the major Siberian steelmaker, Novolipetsk Metallurgical Combine, reported today's Journal of Commerce.

US Cambridge Capital Management Ltd., which holds 17.8 percent of Novolipetsk, claims that along with the Sputnik Fund, a unit of Moscow-based Renaissance Capital, it has a majority shareholding of the steelmaker. The two companies are demanding the election of their representatives to Novolipetsk's board of directors. This view was upheld recently by the Lipetsk Arbitration Court, but efforts to force the steelmaker's management to immediately hold elections to the board have been rebuffed. The management has appealed the Court's ruling to the Supreme Arbitration Court in Moscow.

Moreover, there is a new wave of controversy related to a 15 percent shareholding of Novolipetsk administered by the MFK bank, which recently announced plans to merge with Renaissance Capital. MFK took control of the stake last year through the government's shares-for-loans scheme. The legality of the share transfer is being challenged by an independent state auditor and a local Lipetsk official, who plan to bring the matter to regional court.

According to the JofC, the battle over control of the steelmaker stems in part from suspicions in Lipetsk that Moscow interests intend to dismantle the plant and cut jobs.

European Republics

Kuchma Completes New Government

· Following the appointment of a new prime minister last month, Ukrainian President Leonid Kuchma has completed the process of forming a new government for the country, said the presidential press service. Some ministers from the old government have remained in their posts including Foreign Minister Gennady Udovenko, Trade Minister Sergei Osyka, Minister for Emergency Situations Valery Kalchenko, and Science and Technology Minister Vladimir Seminozhenko.

The president has appointed Gennady Osaulenko as the chairman of the state statistics committee and former Economy Minister Yuri Yekhanurov as the chairman of the state committee for the development of entrepreneurship.

Viktor Zabara was moved from the position of first deputy minister of machine-building, and military conversion to become first deputy industry minister.

It was also announced that President Kuchma will go to the Crimea for his vacation, beginning today.

Potential Investment Projects in Ukraine

· The US Embassy in Kiev recently published a list of three major environmental projects in Ukraine which are viable for US company participation and the post has urged interested US companies to explore World Bank, European Bank for Reconstruction and Development (EBRD), and other project finance resources.

When you need to know it as it happens




July 30, 1997

Intercon's Daily

(1) A municipal water an wastewater project for the cities of Lviv and Odessa involves the institutional reorganization and strengthening of water and wastewater in the two cities, investments in waters and wastewater infrastructure, and engineering services and environmental activities to be defined. The project has an estimated value of $40 million and includes the involvement of the World Bank.

(2) A municipal utility development and investment program will cover two of the Ukraine's most polluted industrial cities, Zaporozhiye and Dnipropetrovsk. The project concept is to initiate a pilot operation which would provide a blueprint for the financing of further municipal infrastructure projects in Ukraine. The project will target the reduction of severe environmental pollution of the Dnipro river and initiate a water quality improvement and operating costs reduction project. The estimated value is $70 million of which the EBRD will finance $45 million through a sovereign guaranteed loan. Upon completion of a feasibility study by English consultants, a tender will be announced.

(3) An ozone protection project with an estimated value of $29.3 million. The Global Ecology Fund will grant Ukraine $26.4 million in the first half of 1997 to decrease the use of ozone destroying chemicals at Ukrainian enterprises. By the end of 1999, the state will allocated 5.5 million hryvnia ($2.9 million) for the same purpose. The Global Ecology Fund aid will be managed by the World Bank and the United Nations.

South Caucasus & Central Asia

Roles Reversed on Rus. Troops in Abkhazia

· The situation concerning the future of the Russian peacekeepers in Georgia's separatist region of Abkhazia, whose mandate is due to expire on Thursday, has became more uncertain over the last few days. After months of insisting that the peacekeepers must widen their area of activity or withdraw, Georgian President Eduard SHEVARDNADZE hinted on Tuesday that he had been swayed by US and UN

arguments that the Russian troops should remain. He suggested that a decision on the status of the peacekeepers should wait until the next CIS summit.

At the same time, the Russia side, which has been insisting that the peacekeepers must stay and practicing vigorous shuttle diplomacy to this end, threatened Georgia with the removal of the peacekeepers. "If by July 31 we do not get confirmation from Georgia that it agrees to prolong the mandate we will withdraw the peacekeepers," Russian Foreign Ministry special envoy on the Georgian-Abkhazian talks Gennady ILYUCHEV told Reuters. Pointing out that Abkhazia has officially acknowledged "the key role of the peacekeepers" in the region, he asserted that Tblisi must do the same.

However, the Georgian parliament this week rejected a proposal to hold an emergency session to discuss the mandate of the peacekeepers and went on summer recess without addressing the issue, reported RFE/RL Newsline.

Meanwhile, Russian peacekeeper Vladislav Mokshin was killed at the peacekeepers' post in Abkhazia's Gali district on Tuesday night. Reports on MOKSHIN's death vary from him being involved in a firefight with unidentified gunmen, to him being hit by a sniper, to his stepping on a land mine.

Uzbek Economy Shows Growth in H1

· Uzbek President Islam Karimov said Tuesday that the country's gross domestic product (GDP) increased by 3.9 percent in the first half of this year, compared with the same period in 1996, reported Interfax. Industrial production rose by 5.4 percent, while agricultural output increased 22.8 percent.

Karimov said average inflation in the six months stood at 3.5 percent, lower than the seven percent forecast by international financial organizations. Inflation fell from 13 percent in December 1996 to 2.9 percent in May and a negative 3.1 percent in June as a result of a series of measures adopted by the government to stabilize the economy, he said.

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