DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 908,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, August 25, 1997

Russian Federation

Politics

Berezovsky Criticizes First Deputy Premiers

· Russian Security Council deputy secretary Boris Berezovsky on August 19 accused the country's first deputy prime ministers of ignoring Russia's business community, reported Reuters. "Business people, self-made men are the backbone of economy and the foundation of reforms. The authorities should certainly listen to what the business community says," Berezovsky told a news conference. "Unfortunately Anatoly Chubais and Boris Nemtsov have decided they can snub the opinion of business community."

Relations between Berezovsky and two first deputy premiers soured in recent months when the latter imposed new rules for running privatization tenders for stakes in big state companies like Svyazinvest and Norilsk Nikel. Following the tenders last month, newspapers and television stations controlled by Berezovsky and some other major businessmen harshly criticized Nemtsov.

CHUBAIS complained recently that Russia's top businessmen tried to influence government policies on such issues as the conduct of privatization. Last week, NEMTSOV told RFE/RL that Berezovsky "is not a person in the right job" in the Security Council and hinted that the government might soon attempt to temper his influence.

Arrests Made in Killing of Hockey President

· Russian police have arrested 10 people in connection with the April 22 killing of Russian Hockey Federation president Valentin Sych, reported Izvestia on August 21. Among those arrested was SYCH's predecessor, the president of the then International Hockey League, Robert Cherenkov.

Police said that the motive for the murder was financial gain and was connected to the tax breaks given to the Hockey League.

St. Petersburg Deputy Governor Killed

· St. Petersburg Deputy Governor Mikhail Manevich was shot to death by unidentified assailants on August 18 in an apparent contract killing. MANEVICH, who headed the city's Property Committee, is believed to have been killed in connection with his privatization activities.

In related news, a top oil executive in Petersburg was murdered on late Saturday night in another contract killing. Valery Mandrykin, vice-president of the oil trading company Neste-St. Petersburg, was killed at his dacha near St. Petersburg. Mandrykin supervised operations of branches of Finland's Neste Oy in St. Petersburg and Russia's Northwest regions. Neste-St. Petersburg is a Russian company with 100-percent Finnish capital. It controls 20 percent of the oil products market in the Northwest as well as 15 out of 120 gas stations in St. Petersburg.

Russia's Favorite Funnyman Passes Away

· Russia's most beloved comic figure and the director of the Moscow Circus Yuri Nikulin died on August 21 at a Moscow clinic where he had undergone heart surgery. The 75-year-old comic had been in intensive care since his operation on August 5.

Nikulin, born in 1921 in Smolensk, was a World War II veteran who became

Today's News Highlights

Russia

Petersburg Oil Exec. Killed

Arms Export Agency Head Out

Arms Exports Restructured

Trade Turnover Down

Exxon Oil Deal Canceled

News from Zhukovsky Airshow

KrasAir-Scirocco Deal

European Republics

Belarus Vs. Russia Re: ORT

Ukraine Govt Appointments

Politics-Economics-Business

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Monday

August 25, 1997

Intercon's Daily

a Moscow Circus clown in 1950. He was appointed director of the circus in 1984, a post he still held. While Nikulin was closely associated with the circus, he owed much of his nationwide popularity to his movie roles in the 1960s, well known to generations of Russians.

Russia's major newspapers mourned for NIKULIN on Friday, noting that his death is a huge loss for Russian entertainment. "No more is the most amusing and most lyrical of performers, the Russian Chaplin, whose smile, frolicsomeness, anecdotes, and human profundity have made him a man of circus admired by all the people," said Izvestia.

…Another tragic loss to Russian arts occurred over the weekend, when respected theater and film actress Yelena MAYOROVA committed suicide by setting herself on fire. Police said that MAYOROVA, who was in her late 30s, doused herself with gasoline on Saturday in the stairway of her central Moscow apartment building and set herself on fire, said Interfax. Firemen extinguished the fire and took her to the hospital, but she died before regaining consciousness. The motive for suicide is unknown.

Economy

Ruble = 5,817/$1.00 (NY rate)

Ruble = 5,820/$1.00 (CB rate)

Ruble = 5,809|5,831/$1.00 (buy|sell rates)

Arms Export Agency Head Replaced

· Russian President Boris Yeltsin issued a decree on August 21 appointing Yevgeny Ananyev director of arms export agency Rosvooruzheniye, replacing Aleksandr KotyElkin. Ananyev is chairman of the board of MAPO-Bank, which is linked with the MAPO and MiG aircraft companies, but he is little known in the military-industrial complex.

The move was apparently unexpected by KotYelkin who boasted at the Zhukovsky airshow last week that Russian sales orders for arms would exceed $10 billion by the end of the year and that the country would catch up with the world's largest exporter, the US, in the next few years.

Some observers believe that KOTYELKIN's dismissal was linked to his close relationship with Aleksandr KORZHAKOV, whose recently-released

memoirs sharply criticize YELTSIN, while others merely see it as part of ongoing struggle for the powerful position of chief arms exporter.

Also last week, YELTSIN signed decrees increasing state control over arms exports in an effort to reduce corruption and gain more funds for the Defense Ministry and the government. He called for Rosvooruzheniye to be restructured, officially dissolving the agency and re-forming it under the same name. In addition to Rosvooruzheniye, the decree gave two Russian firms—Promexport and Russian Technologies—permission to export weapons.

The newly-formed Promexport will sell surplus Defense Ministry weapons stockpiles, while Russian Technologies will trade in Russian technologies.

Russian Trade Turnover Down

· Russian trade turnover declined by 3.9 percent in the first half of 1997, compared with the same period last year, reported Interfax, citing Trade Ministry figures. Russian exports during January-June 1997 fell by 2.4 percent to about $40.4 billion. Natural gas accounted for 21.6 percent of Russian exports and crude oil made up 18.2 percent.

Russian imports in the first half of 1997 are estimated at $22 billion, down 6.4 percent from last year. Imports from the Commonwealth of Independent States (CIS) fell by 22.4 percent.

Business

Exxon's Timan Pechora Oil Deal Canceled

· Russian Natural Resources Minister Viktor Orlov on August 20 signed an order canceling US Exxon's participation in a 1996 tender to develop a major oilfield in the Russian Arctic, reported Reuters. A regional official told the news agency that the decision was based on recommendations by an expert group which found "five deviations from the law in the tender conditions."

Last December, Exxon won a tender to develop the CentralKhoreiverskaya oilfields in the TimanPechora basin. The terms of the tender call for the fields to be developed on a productionsharing basis and for Exxon to hold a 50 percent stake in the project. Russian oil companies Rosneft, KomiTEK, and local exploration firm Arkhangelskgeoldobycha

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were to equally split the remaining 50 percent. The contract covers an area of 2,261 square kms and holds crude oil reserves of 156165 million tons.

News From the Zhukovsky Airshow

· "The hard times for Russian aviation are over," Russian President Boris Yeltsin said at the opening ceremony of the Zhukovsky air show on August 19. Some 328 aerospace firms from 24 countries took part in the exhibition, which closed on Sunday.

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Russian private airline KrasAir announced on August 20 at the Zhukovsky airshow that it has ordered ten Tu_204 aircraft from the Egypt-based Sirocco Aerospace International. "We are delighted to announce that KrasAir are the launch customer for the Sirocco Tu_204-120. This is a major mile stone for both Sirocco and the Russian Aviation industry," said Sirocco chairman and founder Dr. Ibrahim KaRNel. "The Tu 204s combine the exceptionally powerful, robust Rolls-Royce engines with avionics systems from Honeywell and Allied Signal in the advanced design technology of the Russian Tupolev. The result is a flexible, highly efficient, and cost-effective package."

KrasAir will operate the Tu_204 aircraft under an Operating Lease with a purchase option, a procedure for which has been worked out by Citibank, Sirocco's financial consultant. Delivery of the first aircraft from Aviastar's Ulyanovsk factory is scheduled for September 1997.

KrasAir operates scheduled and charter flights to 24 cities in the CIS as well as eight international destinations, including the US.

Sirocco will add the Tu_204_120C freighter variant to its fleet following certification in October 1997. The 120C can carry up to 25 tons over 3,500 km.

Sirocco Aerospace International is a global aerospace company established to bring new products, combining the best Western and Russian aerospace technology, to world markets.

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Russian Aeroflot International Airlines received a European certificate for the right to service Airbus A_310 planes at Moscow's Sheremetyevo airport, reported Itar-Tass on August 22. The certificate will help Aeroflot reduce the cost of servicing foreign

planes because it gives the airline the right to sell its A_310-related services to other carriers.

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Europe's Airbus Industrie on August 21 signed a cooperation agreement with Russia aimed a promoting joint civilian aviation projects, including helping the Russian aviation industry meet Western European standards, reported Dow Jones. The accord was signed by Deputy Prime Minister Yakov Urinson and Airbus CEO Volker von Tein.

Projects would range from certification to research and production, including providing the Russian s with technical assistance to gain European-type certification for the Tupolev_204 aircraft. The accord envisions an increase in the supply of Russian materials and alloys in the production of Airbus aircraft, as well as possible subcontract work. An Airbus statement also mentioned potential Russian cooperation on the consortium's plan to build the world's largest airliner, the A3XX.

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US Boeing and the Russian Federal Aviation Service (FAS) on August 18 signed a memorandum on plans to ensure flight safety and cooperate in air traffic control matters. FAS Deputy Director Viktor Galkin and Boeing Vice-President Charles Higgins agreed to continue the exchange of information on flight safety, as well as further organize meetings between relevant experts.

Higgins told Itar-Tass that the two sides also discussed the use of the Russian air space by US airlines. They reached an understanding on the creation of a joint group of experts to prepare feasibility studies for the opening of new trans-polar routes, for example, from the US to Southeast Asia, which will fly over the Russian territory, he said.

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The Moscow Aviation-Industrial Association (MAPO) on August 22 signed two agreements on a project to create a training aircraft, the MiG-AT, with two French firms, reported Itar-Tass. One deal was signed by MAPO and MAPO-MiG with Snecma and Sextant Avionic, which plans the creation of a joint marketing group to promote the sale of the MiG-AT on the international market.

The second deal will pave the way for the Russian side to receive credits to finance the project under guarantees from the French government.

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as irresponsible an attempt to tie up the future of the Russia-Belarus Union with the outcome of an act of provocation against Belarus undertaken by the Russian Public Television," Itar-Tass cited it as saying.

At a meeting with the Russian ambassador to Minsk, LUKASHENKO described Yastrzhembsky's statement as "blackmail," insisting that the Kremlin denounce the remarks. At the same time, he promised to release the Russian journalists.

Three out of four members of the second crew were released from custody in the Belarus town of Lida on August 22. Minsk referred to the release as a "goodwill gesture by the Belarussian authorities."

Russian State Duma Speaker Gennady SeleznyEv arrived in Minsk on August 22 to discuss the problems relating to ORT.

Final Government Appointments in Ukraine

· Ukrainian President Leonid KUCHMA on August 21 named Suzanna STANYK as the country's new Justice Minister, replacing Sergei GoloVATY. The dismissal of GOLOVATY, who spearheaded an anti-corruption campaign and advocated a Western-oriented foreign policy, is a signal that Kiev's support for democratic and market reforms is "flagging," according to the Financial Times.

STANYK previously served as Family and Youth Minister, a post which will now be filled by the deputy head of the Kiev Oblast Administration Valentina DOVZHENKO.

KUCHMA also decreed Vasily DURDINETS, head of the Presidential Anti-Corruption Coordination Committee and National Investigation Bureau director, be given the rank of general of the Interior Ministry.

On August 21, KUCHMA appointed Zinovy Kulik as Information Minister. KULIK has held this post in the past. The appointment rounds out the new Cabinet, which was formally presented to the president on August 22.

European Republics

ORT Struggles with Belarus

· The confrontation between Belarus and Russia over the detention of two Russian Public Television (ORT) crews by the Belarussian KGB escalated last week, harming relations between the two neighbors. The problems began when a three-person ORT team was arrested at the Belarussian-Lithuanian border in early August. One man was released, but the other two are being charged with border violations despite Moscow's repeated attempts to gain their freedom. The situation was exacerbated when a second, four-member ORT crew was arrested near the same border crossing on August 15. The arrests have caused several angry exchanges between Russian and Belarussian officials.

On August 18, Belarus President Aleksandr Lukashenko told Anatoly LisitsYn, the visiting governor of Russia's Yaroslavl region, that the four ORT men had confessed that they illegally crossed the Belarus-Lithuania border. He claimed the journalists said the ORT management had forced them to enter the border area under threats of dismissal. They allegedly gave Belarussian authorities with the names of media executives behind the scheme.

Belarus Security Council deputy secretary Ivan Yurkin on August 19 claimed to have proof (records of telephone conversations) that the ORT leadership was involved in organizing the incident at the Belarussian-Lithuanian border and said the documents would be provided to the Russian government, State Duma, and mass media.

On August 21, Russian presidential spokesman Sergei Yastrzhembsky told Ekho Moskvy radio that relations with Belarus would have "gloomy prospects," if the men were not released within a day.

Later that day, Lukashenko's press service circulated a statement criticizing YASTRZHEMBSKY's statement. "The Belarussian leadership considers

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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