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, August 14, 1997

Russian Federation

Politics

Poll Shows Russians Skeptical of Govt.

· A new poll conducted by the Russian Public Opinion Foundation found that Russian citizens are very skeptical about promises made by the government, although they approve of most initiatives, reported Interfax. The Foundation questioned 1,500 Russians at the beginning of August.

Some 55 percent of respondents do not think the government will be able to collect taxes from debtor enterprises. The same number don't believe that the government will have paid back wages to servicemen by September 1, as promised, and 54 percent said wages arrears for state workers will not be repaid by the January 1 deadline.

Many of those polled were skeptical of the optimistic media reports about the Cabinet's performance. More than half (58 percent) doubt that the government has a clear program, and 67 percent do not think that the government will overcome the economic crisis. Two-thirds of respondents do not perceive the government as a unified team.

However, some 40 percent are ready to accept press reports that the government has become more open and is trying to establish a dialogue with the population. Another 51 percent of respondents were skeptical that the media was painting an accurate picture.

Interfax Head Named to Pres. Administration

· Russia President Boris Yeltsin has signed a decree appointing Mikhail Komissar as the new deputy head of the presidential administration, the presidential press service said today. He will replace Maksim Boiko who was named Deputy Prime Minister and State Property Committee head on

Wednesday. Before the appointment, Komissar headed the private Russian news agency Interfax.

Economy

Ruble = 5,802/$1.00 (NY rate)

Ruble = 5,809/$1.00 (CB rate)

Ruble = 5,799|5,919/$1.00 (buy|sell rates)

Tax Service Eyes Large Taxpayers

· Russia's State Tax Service (STS) has started checking into major enterprises in the diamond and oil sectors, reported Prime-Tass today. Head of STS department for large enterprises Aleksandr Potyomkin told a briefing that special attention would be paid to those enterprises which extensively use tolling arrangements and have a wide range of mediator firms and offshore companies.

Potyomkin said that simultaneously information would be gathered on individuals owning those enterprises, whose overall taxes exceeded 100 million rubles. The State Tax Service is particularly concerned about offshore firms, a common loophole for tax evasion. Procedures are being developed to restrict their operations in Russia, he said.

Potyomkin's department was established in April 1996 at the initiative of the government and the International Monetary Fund (IMF) and its task is to work with all major taxpayers whose overall tax deductions exceeded 100 billion rubles. Today, there are about 250 such enterprises.

Today's News Highlights

Russia

Amoco Eurasia New Chairman

Most Buys into Newspaper

Bank of Moscow in Share Deal

European Republics

Ukraine Eco. Min. Speaks

Ukraine Public Health Goals

South Caucasus & Central Asia

Abkhazia Leader to Georgia

Aliyev on Russian Basing

Turkmen Caspian Oil Tender

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Inspections of enterprises in the aluminum industry and firms that work in conjunction with the Russian arms export agency Rosvooruzheniye have already raised an additional 200 billion rubles for the budget, said Potyomkin.

Russia-US Nuke Waste Plant Deal

· A US-Russia joint venture project, Murmansk Initiatives, will put into operation a liquid nuclear waste processing plant, being built in northern Russia, in March 1998, reported Interfax, citing Vyacheslav RUKSHI, the director of Russia's Atomflot repairs and transportation enterprise. All necessary documents for the $3.3 million project have been prepared and some of the equipment has been assembled, he said.

About $1 million will be spend on processing 5,000 cubic meters of radioactive waste at the new plant. The new plant will be unique in that it will be capable of processing salt solutions. The first stage of the dismantling of old nuclear submarines is the unloading of salt waste.

Business

Amoco Eurasia Gets New Chairman

· US Amoco Corp. has named Charles J. PITMAN as chairman and president of its Amoco Eurasia Petroleum Co. unit, reported today's Wall Street Journal. The unit manages Amoco's operations in Russia, Azerbaijan, and Kazakhstan. PITMAN succeeds T. Don Stacy, who retired last month.

Most to Buy into Obshchaya Gazeta

· Media-Most holding company president Vladimir Gusinsky said today that his company will purchase a stake in the Obshchaya Gazeta newspaper. "We have been invited to take part in the consortium of Obshchaya Gazeta and we decided to join it. I hope the project will be successful and profitable," Gusinsky told Ekho Moskvy radio, which is owned by Media-Most.

Gusinsky also wants Media-Most to take part in the tender for the sale of a stake in Russia's biggest film company Mosfilm, which is expected to take place next year, according to Prime-Tass. In addition, the company also plans to develop a network of movie theaters in Russia.

Bank of Moscow Buys into Troika-Dialog

· The Bank of Moscow, which is majority-owned by the Moscow city government, has purchased a 20 percent stake in Russia's Troika-Dialog investment bank, reported the St. Petersburg Times this week. The move, which company officials described as a "key strategic alliance," will give Moscow a valuable position in one of Russia's first and most respected investment houses. Dialog bank will gain a big client and a powerful ally as a result of the deal.

Under the deal, Bank of Moscow president Andrei BORODIN will head Troika's board of directors. Officials did not reveal the price that Bank of Moscow paid for the shares, nor which of Troika's owners had sold the stake.

Last year, Euromoney magazine ranked Troika Dialog, founded in 1991, as the foremost Russian investment bank. Its client list includes oil conglomerate Lukoil, regional phone companies Tyumen Telecom and Nizhnosvyazinform, cigarette maker Philip Morris, and packaging giant Tetra Laval. Troika-Dialog's trade turnover in the first half of 1997 stood at $1.4 billion.

Canada's YBM Wins Russia Contract

· Canada's YBM Magnex International, Inc. on Wednesday announced that it has recently negotiated a five-year supply contract with Russia's Volgodonekonomservis company to supply various magnetic applications, including magnetic filters, magnetic plugs, and other magnetic filtration devices, said Canada NewsWire. The contract is expected to generate sales of about $3 million in the first year and increase substantially each year thereafter after five years.

Volgodonekonomservis is a supplier to the Volzhsky Automobile Works (VAZ) in the Volga region, one of Russia's largest car manufacturers.

YBM's primary business is serving the growing global market for high-energy permanent magnets.

US Company Seeks Customers in Russia

· Santa Fe, NM-based trading company Wildflower International seeks to provide American parts and supplies of all kinds to businesses in Russia and the CIS, said a company press release on Wednesday.

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The company supplies electronics, mechanical products, building materials, and many more items to manufacturers, construction firms, utilities, road builders, railroads, and others. Wildflower is authorized distributor for over 2,000 US manufacturers, and offers financing to its customers.

Viktor SUSLOV told reporters on Wednesday that Ukraine would need to make painful decisions to overcome the current economic crisis. "The government has a lot of prepatory work to do to bring to life a package of measures, including unpopular ones, to get the economy in order and pull it out of crisis," Reuters quoted him as saying.

SUSLOV, formerly chairman of the parliamentary banking and finance committee, was appointed on July 25 in a major government shake-up.

"I would like to hope that there will be a very clear shift from economic romanticism to the politics of tough economic pragmatism in the work of this government," he said. SUSLOV said he favored "sensible protectionism," including vigilance on dumping goods in Ukraine and imposing duties where appropriate on imports to the country.

SUSLOV confirmed that the government plans to cancel subsidies on communal services, such as rents and utilities.

He also said that the government would begin bankruptcy proceedings against 30 large enterprises, which were deemed inefficient and obsolete, and owe large debts to the federal budget. "The aim is very simple—to launch bankruptcy cases in the arbitrage court, stop these businesses and sell them off. There is no way out. These are steps which should have been taken a long time ago."

South Caucasus & Central Asia

Abkhazian Leader Visits Georgia

· Abkhazian leader Vladislav ARDZHINBA and Russian Foreign Minister Yevgeny PRIMAKOV today arrived in Tblisi together to meet with Georgian President Eduard SHEVARDNADZE. PRIMAKOV was expected, as he was to prepare for a Moscow meeting between SHEVARDNADZE, ARDZHINBA, and Russian President Boris YELTSIN.

ARDZHINBA was apparently not expected. This is the first official visit of the Abkhaz leader to Georgia.

ARDZHINBA and SHEVARDNADZE met today, without PRIMAKOV, to discuss a peace settlement between Tblisi and the separatist region. ARDZHINBA produced a document for negotiations that was

European Republics

ORT Reporters Still Jailed in Belarus

· A Belarus court in Grodno on Tuesday declined the appeal from Garri Pogonyailo, the lawyer of detained Russian television journalist Pavel Sheremet, to release him from custody, reported Itar-Tass. Sheremet, who is chief of the Belarussian bureau of Russian Public Television (ORT), and cameraman Dmitry Zavadsky were detained in Belarus three weeks ago on charges of illegally crossing the Belarus-Lithuania border. No date for the trial of the two men has been set.

On Wednesday, Sheremet began a hunger strike to protest his detention, Pogonyailo told a press conference in Minsk. He said that police have inventoried the property in the apartments of Sheremet and Zavadsky, which can be confiscated if they are found guilty of illegally crossing the border.

Ukraine Public Health Priorities

· Ukrainian Prime Minister Valery Pustovoitenko said Tuesday that the government's health policy priorities are stemming the population decline and improving the pharmaceuticals industry, reported Xinhua. In recent years, the average number of deaths each year in Ukraine, a country with a population of 51.3 million, has reached about 800,000, while the birth rate stands at 470,000 annually.

Pustovoitenko attributed the growing death and decreasing birth rates to low family income level caused by the poor financial situation in the country.

Noting that tuberculosis (TB) is one of the major killers threatening Ukrainians, Pustovoitenko also urged pharmaceutical plants to support the government's plan to prevent and control TB by making more effective drugs. The latest statistics show that one million Ukrainians are suffering from TB, a disease that killed 8,200 in 1996 alone.

Ukr. Eco. Min. Says Pragmatism Needed

· Newly-appointed Ukrainian Economy Minister

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rejected by SHEVARDNADZE as unacceptable, but the proposal presented by Georgia was deemed by Abkhazia to be an acceptable basis for negotiations. However, the two sides made little headway toward a settlement, and ARDZHINBA departs tomorrow.

Intercon sources in Georgia indicate that Tblisi does not see ARDZHINBA's visit as a serious attempt by either Abkhazia or Russia to seek peace. It is merely seen as an attempt by Moscow and Sukhumi to be actively working toward a resolution after their poor showing at the last peace negotiations in Geneva. Russia, in particular, is clearly feeling pressure from the US to do something.

This pressure stems from SHEVARDNADZE's recent trip to Washington, the visits of several US congressional delegations to Georgia this week, and from US Secretary of State Madeleine ALBRIGHT's talks with PRIMAKOV during the recent ASEAN meeting in Kuala Lumpur. ALBRIGHT reportedly told the Russian minister that Abkhazia will now become a permanent feature of the US-Russia agenda.

Azerbaijan Rejects Russia Base Offer

· Azeri President Geidar ALIYEV told three US Senators in Baku Tuesday that Moscow has repeatedly offered to "liberate" the districts of Azerbaijan currently under the control of Karabakh Armenian forces in return for the right to station troops in Azerbaijan, said RFE/RL Newsline, citing Turan. Azerbaijan has rejected this offer, he said. ALIYEV

proposed that the US assume the role of guarantor of the independence of the former Soviet republics.

Ashgabat Plans Caspian Oil Tender

· Turkmenistan will announce the first international tender for the development of hydrocarbon resources in the Turkmen part of the Caspian Sea on September 1, reported Itar-Tass. President Saparmurat Niyazov said he would sign a decree today on procedures for the tender. The results of the tender will be available by January 1, and then talks on signing contracts with the winning bidders will begin.

The Turkmen government is expected to hold presentations for the tender in Vienna, London, Houston, and Ashgabat during September-November.

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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