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

Tuesday, August 12, 1997

of the conflict with Chechnya, Shevtsov was chief of staff of Russian forces in Chechnya.

In October 1995, he was appointed deputy commander of the NATO-led Stabilization Force in Bosnia and Herzegovina in charge of the Russian contingent.

Economy

Ruble = 5,800/$1.00 (NY rate)

Ruble = 5,808/$1.00 (CB rate)

Ruble = 5,798|5,818/$1.00 (buy|sell rates)

Livshits Says Realistic Budget Needed

· Aleksandr LIVSHITS, deputy head of the Russian presidential administration and former finance minister, said in an interview with Profil published on Monday that a "realistic" budget must be adopted for 1998, if the redenomination of the ruble is to go as planned. "There are now many people telling the president good news. They come and say everything is all right: pensions are being paid out and growth is about to begin," he is quoted as saying.

He said that he is the only one informing the president of the possible negative consequences of the planned monetary reform effort. "Not everything, and primarily the budget, has been prepared for the future redenomination," according to LIVSHITS.

He said that he knows the government is drafting a realistic budget this year, but "the question remains as to whether the State Duma will be

Russian Federation

Politics

Security Council Discusses Info. Security

· The Russian Security Council today discussed a draft Doctrine on Russian Information Security with the participation of the Russian mass media, reported Itar-Tass. "Security of the information sphere largely determines the security of the entire nation in a modern society where information and the means of its processing, transmission, and distribution increasingly become an important strategic resource," said a Security Council press service statement released after the meeting.

The draft doctrine notes that the vitally important interests of Russia in the information sphere include observation of constitutional rights and freedoms of citizens in spiritual life and information activities, spiritual revival of Russia, development of national industry of means of informatization and telecommunications, as well as measures to bring its products to world markets.

Special accent was made on the need for ensuring security of Russian information and telecommunication systems.

New Deputy Interior Minister Named

· The former commander of Russian peacekeepers in Bosnia, Colonel-General Leonty SheVtsov, has been appointed commander of Russia's Interior Ministry troops and a deputy interior minister. He will replace Colonel-General Anatoly Shkirko who resigned last month, citing health problems.

General Shevtsov, a career army officer, graduated from the Tashkent Military High School and formerly commanded a tank battalian of Soviet troops stationed in former East Germany. At the beginning

Today's News Highlights

Russia

Bank Problems Hurt Farmers

Mobile Chooses Motorola FLEX

Russia Diamond Deal in Angola

European Republics

Kuchma --New Appointments

Ukraine Issues Eurobond

Odessa News Editor Killed

Ukraine to Sell Aircraft Carrier

South Caucasus & Central Asia

Primakov to Visit Georgia

Politics-Economics-Business

Page

Tuesday

August 12, 1997

Intercon's Daily

brave enough to pass a 1998 budget we will be able to implement in full."

Speaking in St. Petersburg on Monday, State Duma speaker Gennady Seleznyev said a draft federal budget for 1998 to be submitted to the Duma in September is "a very tough budget with even more constraints which basically do not provide for any benefits," reported Itar-Tass. Seleznyev said that the draft budget will prompt "very rigorous debates" just like the Land Code has.

The 1997 budget was deemed "unrealistic" in April by the Russian government, which introduced a sequestration bill to reduce spending and increase revenues.

Bank Problems Affecting Agriculture

· Russian Agrarian Party head Mikhail Lapshin told Interfax on Friday that the campaign unleashed recently to discredit certain commercial banks which help finance the agricultural sector is impairing the harvest. He said that "slow and poor quality" harvesting was caused by "insufficient financing" as a result of the "destabilization of the situation regarding potential creditor banks."

Specifically, the National Reserve Bank has recently been subjected to "assaults," LAPSHIN said, referring to inspections of the bank. These actions "have nothing to do with professional inspections and are just disorganizing and disrupting the bank's operation," he said.

The Bank is ready to implement "a powerful program for the agricultural sector," he said. But the Bank's large-scale plans for the sector have become "a reason for the recent attempts to discredit it," said Lapshin, adding that this is "unfair competition."

Russia's Prosecutor-General has opened a criminal case against the Bank and its chairman and has seized many Bank documents. The Bank is accused of breaching tax laws and of bond transaction offenses, said Interfax.

Business

Russia's Mobile Chooses Motorola

· Russia's largest paging operator Mobile Telecom told reporters in Moscow Monday that it will adopt

Motorola's FLEX™ protocol, said a Business Wire report. This follows the Russian government's decision to adopt the FLEX protocol as one of its national wireless telecommunications standards.

Mobile Telecom president Lev Daitchik commented: "We can officially announce that the FLEX protocol will be the high-speed standard our company is going to adopt. This will allow us not only to increase substantially the quality of the service and the number of services our paging networks offer, but to eventually introduce two-way and voice paging. Our corporate mission is to utilize the latest technologies and provide the best possible service to our customers. The coming era of the FLEX standard will substantially increase the possibilities of paging systems."

Mobile Telecom started commercial operation in 1995 and soon became one of the leading paging service providers in Russia. Its subscriber base has grown to more than 40,000 in two years. Mobile Telecom's paging system allows roaming between 46 major Russian cities that are separated by thousands of kilometers.

Upcoming Events

The Business Week Russia Summit

September 10_12, 1997

Grand Hotel Europe, St. Petersburg, Russia

Organized by: Business Week magazine

In association with: Hewlett-Packard Co.,

PLD Telekom Inc., SAP, and Uniland (Russia)

With support from: Finnair; North-West GSM, London Business School,

and Columbia University's Harriman Institute

Info: Julie Terranova

Tel: 212-512-2184; Fax: 212-512-6281

E-mail: jterranova@businessweek.com

TransCaucasus `97 Infrastructure Conference

September 16_17, 1997

Metechi Palace Hotel, Tblisi, Georgia

Sponsored by: JKX Oil & Gas, Ramco Energy,

and Shell EP International Ventures B.V.

Info: International Trade and Exhibitions (JV) Ltd.

Tel: 44-171-306-0033; Fax: 44-171-306-0358

E-mail: conferences@ITE-Group.com

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

August 12, 1997

Intercon's Daily

Almazy to Set Up Diamond Factory in Angola

· Russian diamond producer Almazy Rossii-Sakha plans to operate a concentrating mill at the Catoka diamond deposit in Angola, reported Interfax. The company says the first phase of the mill is to be commissioned from September 10_20.

In 1992, Almazy won an international tender, also involving South African diamond corporation De Beers, receiving the right to develop the Catoka diamond deposit. It will have a 40 percent stake in the Mining Society Catoka Ltd, set up for this purpose.

Another 40 percent will be owned by Angola's Endiama and 20 percent by Brazil's Oderbrecht Mining Services. Charter capital totals $24 million.

The commissioning of the first phase of the mill with an annual handling capacity of 1.5 million tons of ore, or one million carats, will cost an estimated $90 million. As work on the first phase of the mill continues, the company will also carry out additional prospecting work.

The president still needs to appoint a justice minister, an information minister, and a minister for youth and the family.

Ukraine Makes First Eurobond Issue

· Ukraine made its debut on international capital markets on Monday with a $450 million Eurobond issue, reported today's Financial Times. The country is planning to raise a further $1 billion in bonds later this year.

"This issue presents the first opportunity of investors to obtain sovereign exposure to Ukraine in standard Eurobond format," FT quoted Dan JACKSON, a managing director at Japan's Nomura investment firm, which is underwriting the issue.

However, officials said that some investors were unable to buy the bond because Ukraine had not yet been awarded a credit rating by international rating agencies. Ukraine has requested a rating before its first Samurai—yen-denominated—bond issue later this year.

The markets expect Ukraine to get a rating of around Ba2 from Moody's and BB from Standard & Poor's, two notches below investment grade, said FT.

Odessa Newspaper Editor Killed

· Boris DEREVYANKO, editor-in-chief of the popular daily Vechernaya Odessa (Evening Odessa), was shot dead on Monday morning near the newspaper's office, reported Russian television RTR. Police believe the shooting was a contract killing.

DEREVYANKO recently raised questions in the paper about the city government's use of financial resources. The paper is considered the most influential in Odessa and has the biggest circulation in the city of one million.

Ukraine to Sell Aircraft Carrier

· The Ukrainian government said Monday that it will hold a tender to sell the uncompleted Soviet aircraft carrier, Varyag, reported the Ukraine National News Agency. The paper work for the tender will be ready by the end of this month, it said.

Varyag, ordered by the former Soviet navy, was built by the Pontic Navy Yard in the Black Sea port of Nikolaev, Ukraine's major shipbuilding center. The revenues from the sale will be remitted to the Pontic

European Republics

Kuchma Makes New Appointments

· Ukrainian President Leonid Kuchma on Monday appointed Valery Smoly, 47, as a new deputy prime minister, reported Itar-Tass. Smoly, a historian and member of the National Academy of Sciences, worked as director of the Institute of Ukrainian History prior to his appointment. He replaced Ivan Kuras, who is retiring.

Kuchma also appointed Valery Cherep as minister of transportation; Vladimir Radchenko as first deputy coal industry minister; and Vladimir Gusakov as chairman of the State Committee for Construction, Architecture, and Housing Policy. This committee will incorporate the State Committee for Urban Development and Architecture and the State Committee for Housing and Utilities Services.

In addition, the president moved Yaroslav Podgainy from first deputy coal industry minister to deputy coal industry. Vladimir Takhtai was removed from his job as deputy minister of finance and head of the Main Audit Department and assigned to another post. Deputy Finance Minister and State Treasury head Viktor Tentyuk retired because of ill health.

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

August 12, 1997

Intercon's Daily

Navy Yard to replenish its funds and offset losses for the ship's maintenance.

Last April, the Navy Yard announced plans to sell the Varyag to a British company as scrap metal, but the deal was never finalized.

Ukraine Forgives AvtoZAZ Debts

· Ukrainian President Leonid KUCHMA has signed a decree forgiving automaker AvtoZAZ's $52 million worth of debts, paving the way for US General Motors and South Korea's Daewoo to produce cars at the company's plant, reported Reuters. In addition to the debt cancellation, the foreign automakers want a law guaranteeing tax breaks for a joint venture they have formed with AvtoZAZ. The venture will upgrade AvtoZAZ's plant in Zaporozhye to build small and medium-sized cars.

New Income Tax Bill Drafted

· The Ukrainian State Taxation Administration (STA) has drafted a new income tax bill, following complaints by taxation experts that the existing law is outdated and does not conform to realities in Ukraine, STA Superintendent Victor Moroz said Monday, reported Xinhua. Moroz said the new bill is much simpler and easier to read because of its more orderly and logical presentation of provisions.

The current law on personal income tax is extremely complex and is barely comprehensible to lawyers, let alone to ordinary citizens. The new version is designed to make provisions clear-cut, unambiguous, and understandable to ordinary taxpayers.

Under the new bill, monthly income above 70.6 hryvnias (about $38.8), which is the poverty line drawn by the Ukrainian parliament, shall be taxable. Under the old law, citizens earning above 18 hryvnias a month (about $10) were required to pay a tax.

The new bill will have a simplified scale with three major categories of 10, 20, and 30 percent introduced to replace the existing 10, 15, 20, 30, and 40 percent categories.

South Caucasus & Central Asia

Primakov to Georgia Re: Abkhazia

· Russian Foreign Minister Yevgeny Primakov will travel to Tblisi on Thursday, on orders from President Boris YELTSIN, to help resolve the dispute over the separatist republic of Abkhazia. Primakov will meet with Georgian President Eduard Shevardnadze and other Georgian officials. He has already held talks with Abkhaz leader Vladislav Ardzinba.

Ardzinba told the Tblisi newspaper Caucasioni that he is ready to meet with SHEVARDNADZE and believes that the meeting will "bring fruitful results."

Senate Supports Georgian Independence

· US Senator John McCain (R-Ariz.), on a two-day visit to Georgia, spoke out forcefully on the issue of Georgian independence and the need for the removal of Russian troops from the republic. Responding to a question at a press conference at the US Embassy in Tblisi today, he said Georgia's independence will not be completely fulfilled until all Russian forces are withdrawn. MCCAIN then left for the airport to fly to Baku, accompanied by Sens. Phil GRAMM (R-Tx.) and Tim HUTCHINSON (R-Ark.).

Another US congressional delegation, which includes Sen. Mitch MCCONNELL (R-Ky.) arrives in Georgia today.

Fighting Continues in Tajikistan

· Tajik government troops continued to battle rebel fighters led by Colonel Makhmud Khudoberdiyev in a region south of Dushanbe today, reported Russian independent television NTV. Government troops are attacking the rebel stronghold of Kurgan-Tyube and shelling towns where rebel troops are believed to be hiding.

On Sunday, the government gave KHUDOBERDIYEV three days to throw down his weapons, but he shows no sign of compliance.

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