DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, August 15, 1997

fixed and accused Oneximbank president Vladimir POTANIN and the "young reformers" in the Russian government of creating an "oligarchy," said today's Financial Times. "Today, more and more crudely, the relations between one of my former colleagues and the government are crossing acceptable boundaries," he said, clearly referring to POTANIN.

GUSINSKY implies that such government figures as First Deputy Premiers NEMTSOV and CHUBAIS favored POTANIN in the auction arrangements. "Openly and directly some politicians are helping him to obtain economic goals. When one player is in a more advantageous position, and part of the government is cooperating with him for political ends, then that is oligarchy," FT quoted him as saying.

GUSINSKY's complaints about the fairness of the two privatization auctions have been dismissed as "sour grapes" by many, but true or not, the newspaper notes that his statement clearly show that the government reformers no longer enjoy the support of the Most financial and media group and other top bankers. These bankers bankrolled President YELTSIN's re-election campaign, bringing the young reformers to power.

Speaking on Ekho Moskvy radio on Thursday, Gusinsky said his Media-Most holding company "has no claims" to participation in the auction for Svyazinvest, but admitted that a company in the Most financial group was involved in the bidding, reported RIA

Russian Federation

Politics

Government Setting New Privatization Rules

· The Russian government is drafting a decree that requires President Boris YELTSIN to approve rules and procedures for the sale of stakes in state enterprises, according to deputy presidential administration head Aleksandr Livshits. "Sales of big state stakes are to be governed by presidential decrees, which not only approve the fact of sales, but their terms and rules," LIVSHITS is quoted by Reuters as saying.

The draft decree also says that companies linked to the organizers of an auction will not be allowed to participate. It requires the organizer of an auction to be chosen by tender. The winner of the tenders will be the company which promises to ensure the largest revenues for the treasury at the auction.

Participants in the privatization auctions will be provided with full information about the company and the sale will be supervised at every stage by the Russian Prosecutor's Office.

In related news, YELTSIN today praised new privatization minister Maksim BOIKO's experience and impartiality, but criticized the work of his predecessor. The president insisted that banks must not receive preferential treatment during privatization, adding that the scandals surrounding the Svyazinvest and Norilsk Nikel sales were related to the fact that "some banks appear to be closer to the heart of Alfred Kokh, and this is not proper," said Itar-Tass.

Gusinsky Talks of an Oligarchy

· Media-Most company president Vladimir GUSINSKY has reiterated accusations that two recent controversial share auctions in Russia were

Today's News Highlights

Russia

Boiko Promises Honest Auctions

Yeltsin OKs 1998 Budget Draft

Energy Output Down Slightly

Russia Auto Output Up

Enron Sees Power Supply Deal

Oneximbank Buys Minsk Bank

South Caucasus & Central Asia

CIS Summit Meeting Planned

Shell President in Turkmenistan

Uzbekistan Wheat Harvest

Politics-Economics-Business

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August 15, 1997

Intercon's Daily

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said that privatization must be "honest, efficient, and open." The mass media and the public must be kept informed about the process, the participants, and the possible effect on society of each sell-off.

Boiko also called for the rules of privatization to be stabilized and said the sales of state shares must "bring substantial proceeds to the budget," and "must lead to real improvements at enterprises, to investments in enterprises," he said.

Yeltsin Approves 1998 Budget Draft

· Russian President Boris YELTSIN has approved the outline of the 1998 draft budget, which will be finalized by the government next week and be submitted to the parliament for approval by August 25, reported Dow Jones. "The budget is tough but realistic," said deputy head of the presidential administration Aleksandr LIVSHITS. "For the first time, we'll be able to fully finance the budget."

The budget plan calls for revenues of 12.24 percent of gross domestic product (GDP), spending of 17.04 percent, and a deficit of 4.8 percent. The primary deficit, which excludes the cost of debt service, will be 0.43 percent, said LIVSHITS, adding that these figures are based on international budget accounting standards.

This year, the government expects revenues of about 12 percent of GDP, spending between 18 and 19 percent, and a deficit of 6-7 percent. The primary deficit is expected at 2-3 percent of GDP.

Russian Energy Production Falls Slightly

· Russian State Statistics Committee figures show that output by the main energy producers in Russia, except for oil, declined over the first seven months of 1997, compared with the same period last year, reported Prime-Tass today.

Gas production fell by 6.3 percent during January-July to 318 billion cubic meters. Coal output declined by 6.2 percent to 143 million tons. Power generation dropped by 3.9 percent to 478 billion kW/h.

Meanwhile, oil recovery rose by 0.5 percent during January-July, totaling 172 million tons. The increase is credited mostly to enterprises in the Volgograd region, the Nenets Autonomous Area, the Komi Republic, and the Orenburg and Tyumen regions.

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Novosti. He also denied reports that Security Council deputy secretary Boris Berezovsky had any direct or indirect involvement in the auction.

However, Gusinsky confirmed reports that he had met with of Oneximbank President Vladimir Potanin, Berezovsky and First Deputy Prime Minister Anatoly Chubais in France before the Svyazinvest auction, but he said the share sale was not a topic of conversation at the meeting.

"We were speaking of principal, honest rules of game on the market, it was important to understand what are they now and what they will be in the future," he told RIA Novosti.

Kommersant-Daily reported this week that Gusinsky and Boris Berezovsky had agreed to finance a new publication to be launched by former Izvestia editor-in-chief Igor Golembiovsky. GUSINSKY told Ekho Moskvy radio on Thursday that he had not agreed to finance GOLEMBIOVSKY's new venture, to be called Novaya Izvestia. However, he said he would consider offers to participate in the new venture.

Economy

Boiko Promises Honest Privatization

· Russia's new privatization minister Maksim Boiko told a Cabinet meeting today that he takes the office "with his own vision of how the privatization process in Russia must look," reported Itar-Tass. He

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August 15, 1997

Intercon's Daily

Russian Auto Output Up

· Russian State Statistics Committee figures show that the country's automakers produced 549,000 vehicles during January-July 1997, an increase of 12.9 percent from the same period last year, reported Prime-Tass today. The production of trucks increased by 11.5 percent, reaching 84,000.

The production of cars in Moscow grew by 150 percent, compared with January-July 1996, in the Ulyanovsk region—by 63.7 percent, in the Samara region—by 8.8 percent, and in the Nizhny Novgorod region—by one percent.

Number of Russian FiGs Growing

· Russia currently has 72 financial-industrial groups (FiGs) operating in the country, reported Delovoi Mir. Financial-Industrial Groups Association executive director Yermolenko told the paper that the FiGs combine over 140 enterprises and companies and almost 30 banks and financial structures.

Business

Enron Expects to Sent Elec. to Russia

· US energy giant Enron Corp. expects to become the first non-Russian company to receive an electricity supply license in Russia, Enron Europe Ltd. president and CEO Mark FREVERT told Dow Jones today. FREVERT, who said he believes that the political and commercial will exists to liberalize power in Russia, predicted that the license would be granted inside six months.

FREVERT said that Enron is considering importing electricity into Russia across the Finnish border and might also look at investing in generating capacity.

Enron's Moscow office has, up until now, been focusing on developing relations with Russian gas monopoly Gazprom, with which Enron has several joint technical projects. The two companies are looking at the potential for joint gas marketing and possible financing deals.

FREVERT said Gazprom it a likely partner in 478 MW Marmara power plant in western Turkey. The gas-fired plant will sell power to the state utility under a 20-year agreement. Enron will own 50 percent of the plant, which will begin operations in 1999.

Russian-German Pipeline Venture Launched

· Russian-German joint venture Wingas has begun building the JAGAL pipeline, the German section of the natural gas pipeline from the Yamal gas fields of western Siberia to Western Europe, reported Interfax. Wingas involves Germany's Wintershall (65 percent interest) and Russian gas monopoly Gazprom (35 percent).

The JAGAL section will run from Mallnow, Brandenburg in northeastern Germany to Ruckersdorf, Thuringia in southern Germany near the German-Swiss border.

The section, which will come on line in the middle of 1999, will be 330 km long and have a capacity of 28 billion cubic meters of gas annually.

Western European consumers are expected to begin receiving 75-150 billion cubic meters of Russian gas through the Yamal pipeline by the year 2010.

Oneximbank Buys into Minsk Bank

· Russian commercial bank Oneximbank and one of its affiliates have purchased 49 percent of the Belarussian National Bank's second issues of shares in MinskKompleksBank, said RFE/RL Newsline, citing Belapannew agency. Oneximbank now owns 33 percent of the shares, while its affiliate MFK bank owns 16 percent.

Another 32 percent of MinskKompleksBank's shares are owned by Belarussian industrial enterprises, 10 percent by Belarussian citizens, and the remainder by Belarussian private companies.

In other news from RFE/RL, the Belarus National Bank has raised the limit for individual purchases of foreign currency from $200 to $500 a day.

De Beers Delegation to Moscow in Sept.

· A delegation of officials from South Africa's De Beers will arrive in Moscow in early September to discuss a diamond trade agreement with Russia, the head of the De Beers' Moscow office Raymond Clark told Itar-Tass on Thursday. De Beers and Russian diamond company Almazy Rossii-Sakha will coordinate the trade agreement using as the guideline a recent presidential decree on diamond export/import procedures, said Clark.

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Intercon's Daily

Russia Airshow to Open in Moscow

· The MAX-97 International Aerospace Show opens in the city of Zhukovsky in the Moscow region on August 19. The show, which lasts through August 24, is expected to involve 328 companies from 28 countries, including 250 domestic enterprises.

President Boris Yeltsin is expected to open the show. The events will be attended by Prime Minister Viktor Chernomyrdin, Moscow Mayor Yuri Luzhkov, and a number of Cabinet ministers.

development of underwater deposits in the offshore zone close to the Turkmen-Iranian border.

According to Reuters, US Western Atlas International estimates Turkmenistan's Caspian shelf resources at 3.0 billion tons of oil and 4.5 trillion cubic meters of gas. It cited Deputy Oil and Gas Minister Khoshgeldy BABAYEV as saying that Western Atlas was now carrying out seismic research in the shallow waters of the Caspian Sea.

According to the tender resolution, signed by NIYAZOV, bids will be accepted until November 28 and the results of the tender will be announced by January 1, 1998. The resolution said that all bidders will be provided with a package of detailed geological, geophysical, and technical information about the Turkmen shelf area, prepared by Britain's Robertson Research.

Amoco, Unocal, Delta, Mobil, Shell, Exxon, Agip SpA, Japan National Oil Corp., Turkish Petroleum, and the Iranian Oil Ministry have already purchased seismic data on the Turkmen shelf.

Uzbek Wheat Harvest Disappointing

· The outlook for wheat production in Uzbekistan this year is not very promising because of unfavorable weather conditions, according to a report from the US agricultural attaché in Tashkent, cited by Futures World News (FWN). According to the latest data from sources at the Turkmen Ministry of Agriculture and Water Resources, the grain harvest is almost complete, with 96.1 percent of total area sown to grain harvested.

To date, farmers harvested 2.866 million tons of grain (90 percent wheat and 10 percent barley) in total, up from 2.727 million tons last. However, the state's total production goal was four million tons.

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South Caucasus & Central Asia

CIS Summit Planned for November

· A regular summit of heads of state of the Commonwealth of Independent States (CIS) will be held on November 20 in Kishinev, the capital of Moldova, said the Russian presidential press service.

Shell Meets with Turkmen President

· Representatives of Royal Dutch/Shell oil company on Thursday handed Turkmen President Saparmurat Niyazov its proposals on how to bring Turkmen natural gas to world markets, particularly to Turkey via Iran, reported Itar-Tass. Following the meeting with Niyazov, Shell President Alan Parsley told reporters that his company welcomes the chance to cooperate with Turkmenistan in this project.

Describing the project, which involves the governments of Turkmenistan, Iran, and Turkey, as major and difficult, Parsley voiced hope that Shell's participation will have a positive effect on its fulfillment.

Parsley also announced that Shell intends to participate in an international tender to develop oil and gas reserves in the Turkmen section of the Caspian, announced by NIYAZOV on Thursday. Sources in Turkmen diplomatic quarters told Itar-Tass that Shell and the Turkmen Oil and Gas Ministry have decided to form a joint company for the

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Ellen Shapiro, Managing Editor

Svetlana Korobov, Contributing Editor

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