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

Wednesday, July 9, 1997

Russian Federation

Politics

Two Major Newspaper Editors Removed

· The editors-in-chief of two major Russian dailies lost a battle for editorial control to major corporate shareholders this week, demonstrating the new power of business interests over Russian journalism. Russian newspapers struggling to survive in the post-Soviet era of disappearing government subsidies and skyrocketing costs have been forced to turn to major corporations for financing. This week's actions likely mark the beginning of changes to be wrought by the new corporate owners.

On Saturday, Igor GOLEMBIOVSKY was removed from his position as editor-in-chief of Izvestia after a long struggle against the paper's owners, oil conglomerate Lukoil and commercial bank Uneksimbank, reported the Associated Press (AP). During an Izvestia board meeting on Friday, the two companies won control over the appointment of the paper's top editorial post. Previously, the newspaper's staff selected the editor-in-chief.

Lukoil and GOLEMBIOVSKY began a major battle for editorial control over the newspaper in April, when the oil company became upset over the publication of an article critical of Prime Minister Viktor CHERNOMYRDIN. The editor-in-chief further incensed the paper's owners by printing articles criticizing Lukoil itself and two major commercial banks.

On Monday, the Media-Most holding company, a subsidiary of the Most Group, announced the resignation of Segodnya chief editor Yevgeny SEROV, reported Interfax. Media-Most, which owns stakes in Ekho Moskvy radio, Russian independent television NTV, and other media holdings, was formed in January as Russia's first media conglomerate.

According to Media-Most deputy director Vyacheslav KOSTIKOV, the removal of SEROV is part of a reorganization and overhaul of the newspaper. SEROV has been given the position of vice-president of the company.

KOSTIKOV added that Media-Most "would like to make a step toward greater political responsibility and strictness, as Russian society is becoming increasingly aware of domestic and foreign political objectives," according to Interfax. A refurbished version of Segodnya is due out on September 1.

FSB Offering Due Diligence Services?

· According to the head of Russia's counterintelligence service, his agency has been offering due diligence and bodyguard services to foreign investors in the country. He did not, however, disclose the names of any of his clients.

Russian counterintelligence officers have already helped to attract to Russia a credit amounting to several million dollars, and now are promoting investments running into billions of dollars, Russian Federal Security Service (FSB) director Nikolai Kovalyov told Itar-Tass today. "We are actually attracting investments against the guarantees of FSB," he said. Kovalyov explained that the agency ensured "information and personal security" for Western investors working on government programs.

Kovalyov reportedly presented a proposal on the agency's new sideline role

Today's News Highlights

Russia

Decree Changes Oil Export Rules

Palladium, Platinum Exports

Bird Ventilators to Russia

S&P's Rates Alfa Bank

European Republics

UES Buys into Electron Bank

Global Assets Moldova Purchase

South Caucasus & Central Asia

Shevardnadze to OPIC

Turkmen Agri. Min. Fired

Politics-Economics-Business

Page

Wednesday

July 9, 1997

Intercon's Daily

at the 1997 World Economic Forum in Davos. "The initiative was followed by an avalanche of telephone calls. Now the special services are making their modest contribution to the economic development of the country," he said.

It is odd, not to mention inappropriate, that the organization charged with protecting the country from espionage, terrorism, and so forth, is engaged in commercial pursuits. It would seem likely that the FSB is trying to manipulate foreign investors, rather than to assist them.

Economy

Ruble = 5,791.5/$1.00 (NY rate)

Ruble = 5,784/$1.00 (CB rate)

Ruble = 5,773|5,795/$1.00 (buy|sell rates)

Decree Changes Oil Export Rules

· Russian President Boris YELTSIN on Tuesday signed a decree aimed at improving tax collection and increasing efficiency and transparency in the Russian oil industry, which changes the rules for oil exports, reported Reuters. The decree ends federal programs that allowed traders and middlemen to easily export oil. Oil traded through these programs amounted to 15-16 percent of Russia's total exports.

The decree allows Russian oil producers to sell the oil on their own and urges them to use the proceeds to clear their tax debts to the federal budget. This is expected to bring three trillion rubles into the budget for oil companies tax arrears by the end of this year.

Another decree signed Tuesday creates an interdepartmental government commission to oversee the implementation of production-sharing deals, said RFE/RL Newsline. The new commission will be headed by First Deputy Premier Boris NEMTSOV.

Russian Delegation to Salzburg Forum

· Russian Economy Minister Yakov Urinson arrived in Austria today, leading his country's delegation to the European economic forum on July 9-11. Representatives from 11 Central and Eastern European countries will attend the meeting, held under the aegis of the World Economic Forum. Attendees will discuss regional development, privatization, ways to attract investments and fight economic crime, and market relations in the region.

The Russian delegation will also include minister without portfolio Yevgeny Yasin, Central Bank chairman Sergei Dubinin, and Yabloko party leader Grigory Yavlinsky.

Palladium, Platinum Exports to Resume

· Russia's only exporter of platinum and palladium Almazyuvelirexport has obtained the necessary government license and will resume deliveries of these precious metals to the international market this month, a Finance Ministry source told Prime-Tass on Monday. The source said the exporter has already arranged several contracts with foreign customers.

Last month, the government set quotas on exports of platinum and palladium, but no precise figures have been disclosed. In December, after the previous license expired, Almazyuvelirexport suspended exports, pushing world palladium and platinum prices to a record high.

Some experts estimate Russia's platinum and palladium reserves at 53 and 152 tons, respectively.

Business

Bird Sells Ventilators to Russia

· Palm Springs, Calif.-based Bird Medical Technologies, Inc., a wholly owned subsidiary of Thermo Electron Corp., has received an order to send 750 of its respiratory ventilators, valued at more than $9 million, to Russia, said a company press release. The order—the largest in Bird's 43-year history—was placed by the Russian Healthcare Foundation and funded by the World Bank.

The contract includes Bird's 8400 STi adult ventilators and V.I.P. infant/pediatric ventilators. Shipments of the systems have already begun and will continue through the end of the year.

EBRD-Gazprom Plan NN Investment Co.

· Russian gas monopoly Gazprom, the European Bank for Reconstruction and Development (EBRD), and the Nizhny Novgorod Oblast government on Tuesday announced plans to set up the Nizhny Novgorod Investment Energy Saving Co. (NIESCO), reported Interfax. NIESCO's main goal is to finance regional projects to conserve natural gas and to use it efficiently, said Viktor LUNIN, director of the oblast finance department.

When you need to know it as it happens

Politics-Economics-Business

Page

Wednesday

July 9, 1997

Intercon's Daily

The new company will have the status of a closed joint stock society with charter capital of ECU 15 million, which is likely to be distributed equally among the founders. It will select and finance small and medium-sized projects to use and conserve natural gas, and train experts in efficient gas use.

S&P's Rates Alfa Bank

· Standard & Poor's on Monday assigned its single-'B' long-term foreign and local counterparty ratings to Russian commercial bank Alfa Bank, said S&P's CreditWire. The rating outlook is stable.

The single-'B' rating is based on Alfa Bank's transition from being purely the bank of the Alfa Group Consortium to being an independent commercial and retail bank. The bank has made good efforts in reducing inter-Group exposure, which Standard & Poor's views positively, and has benefited from the injection of significant amounts of capital from the wider Alfa Group since the beginning of 1996 in support of the bank's strategy.

The bank nevertheless faces potential volatilities associated with its strategy to build one of the largest independent domestic corporate and retail franchises and the further reduction of some remaining Group exposure.

The bank must also shoulder costs linked to its planned branch expansion over the medium term. The rating also reflects the high risk of operating in the nascent Russian financial sector and in an economy recovering from recession and hyperinflation following the disintegration of the former Soviet command economy.

Established in 1990 as the bank of the Alfa Group, Alfa Bank is in the process of building a commercial and retail banking franchise, independent of the wider Alfa Group which has interests in commodities trading, real estate development, food retailing and capital markets operations. It is starting to increase corporate lending and payroll business and is in the process of expanding its branch network from 20 to 50 branches.

However, strong competition and still restricted domestic lending opportunities pose significant challenges to Alfa Bank's strategy and high concentrations remain in its balance sheet.

European Republics

Ukraine Signs Charter with NATO

· Ukrainian President Leonid Kuchma and the leaders of NATO's 16 member states today signed the NATO-Ukraine special relationship charter at the Madrid summit. The charter stipulates a mechanism for consultations and cooperation in European security matters.

A NATO-Ukraine commission will be set up and will meet two times a year. Military liaison missions are to be formed at the NATO headquarters in Brussels and in Kiev.

Kuchma Seeks to Extend Parliament's Term

· Ukrainian President Leonid Kuchma has sent a letter to the parliament urging it to extend the legislature's term for a year, reported Itar-Tass on Tuesday. Kuchma argues that the parliamentary polls, due next spring, could cause serious instability in Ukraine and bring to a standstill all efforts to overcome the current economic crisis.

In his letter, Kuchma also offered to "shift the responsibility" of passing the national budget from the parliament to the president or a presidential council, to be formed soon. He noted that every year the parliament passes the budget only after a long delay; this year's budget was not passed until June.

Ukraine Automaker Seeks Tax Break for GM

· Ukrainian automaker AvtoZAZ is lobbying parliament to approve a bill giving tax breaks for a manufacturing joint venture involving US General Motors Co. and Korea's Daewoo Corp., reported the Associated Press (AP). AvtoZAZ director Aleksandr SOTNIKOV said the legislation would also write off the carmaker's $98 million debt and raise duties on imported foreign cars. The bill would create an 8-10 year tax exemption for foreign investors putting a minimum of $150 million into joint car production ventures in Ukraine.

SOTNIKOV warned that the company's potential investors would drop plans for the $1.3 billion joint venture, if parliament does not improve the exemption. Under an agreement signed earlier this year, the two foreign car companies will build cars at the company's Zaporozhiye plant, where production has fallen from 90,000 cars in 1994 to 7,000 in 1996.

When you need to know it as it happens

Politics-Economics-Business

Page

Wednesday

July 9, 1997

Intercon's Daily

UEC Buys Interest in Electron Bank

· Ukraine's central bank has formally approved the acquisition by Ukraine Enterprise Corp. (UEC) of a 20.2 percent interest in Electron Bank, based in Lviv, said Canada NewsWire. UES purchased the stake for a total investment of C$1.49 million. UES is expected to be able to increase its stake to 27 percent by the end of this year and later to 35 percent.

Electron Bank has been chosen by the European Bank for Reconstruction and Development (EBRD) to participate in a program of providing small- and medium-sized loans to Ukrainian businesses.

Global Asset Holdings Buys in Moldova

· New York-based Global Asset Holdings Inc. announced Tuesday that it has reached an agreement in principal, subject to a formal closing, to acquire certain companies and assets located in the Republic of Moldova, said a company press release. The acquisition, if completed, will include interests in the banking, insurance, hotel property, a gaming casino, and other ventures.

Further details will be made available after closing which is scheduled for July, it said. The proposed transaction is valued at in excess of $25 million, based upon information provided by the sellers.

Global Asset Holdings Inc. is in the business of acquiring assets internationally with emphasis on privatization of assets in the former Soviet republics.

South Caucasus & Central Asia

Shevardnadze to Meet with OPIC

· As his first stop in Washington next week, Georgian President Eduard SHEVARDNADZE will visit the Overseas Private Investment Corp. (OPIC) to discuss progress on Georgian economic reforms and opportunities for US private investment, said an OPIC press release. More than 50 representatives from US companies from various economic sectors are expected to attend the meeting on July 17.

President SHEVARDNADZE will be traveling to Washington with a delegation of ministers, including his Foreign, Transport, Trade, Finance, and Fuel and Energy Ministers. Also scheduled to attend the OPIC meeting are several US government officials from the Commerce and State Departments, as well as the Trade and Development Agency (TDA).

USDA Finances Wheat for Georgia

· The US Department of Agriculture (USDA) on Tuesday authorized $20 million in special financing for the Georgia to buy 95,000 metric tons of US wheat, reported Dow Jones on Tuesday. The wheat will be financed under a special USDA program that provides long-term financing at low interest rates.

Azerbaijan Applies to Join WTO

· Azerbaijan has submitted a formal application to join the Geneva-based World Trade Organization (WTO), reported RFE/RL Newsline. Negotiations on the country's accession to the WTO are likely to last at least two years and Baku will be required to demonstrate a commitment to opening up its economy to foreign goods and services, it said. All former Soviet republics, except Turkmenistan and Tajikistan, have applied for membership in the trade body.

Turkmen Deputy Prime Minister Fired

· Turkmen President Saparmurat Niyazov on Monday dismissed Deputy Prime Minister/Agriculture Minister Pirguly Odayev and several regional officials in the Akhal Province for failing to fulfill grain production quotas, reported Xinhua. The Province, in which the capital Ashgabat is located, is one of the country's two major grain producing regions.

Under production quotas set up last year, grain harvests were targeted at 1.2 million tons. But the harvest has only reached 600,000 tons. The Akhal Province only met 35 percent of its target figure for grain output and NIYAZOV accused local officials of incompetence, mismanagement, fraud, and nepotism. Turkmenistan is striving to become self-sufficient in grain.

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

available for non-profit institutions.

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.

When you need to know it as it happens

Politics-Economics-Business

Page