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, August 27, 1997

Russian Federation

Politics

Primakov to Minsk to Remedy Relations

· Russian Foreign Minister Yevgeny Primakov traveled to Minsk today on orders from President Boris YELTSIN to patch up bilateral relations between the Slavic neighbors. Relations have broken down in recent weeks over Belarus' arrest of several Russian Public Television (ORT) journalists for illegally crossing the Belarussian-Lithuanian border. PRIMAKOV will apparently seek the release of the three journalists still in custody as well as discuss the future of the Russia-Belarus union, put in jeopardy lately by the disagreements.

Minsk, however, does not seem ready to free the journalists nor to believe that it is not under attack by a hostile Russian media. On Tuesday, the Belarussian KGB and the prosecutor's office issued a press release saying that some Russian media reports on the criminal proceedings against the detained Russian journalists were fabricated and represent an attempt to pressure investigators, according to Itar-Tass.

The statement also said that Belarussian authorities see the release of two of the journalists as inexpedient. Minsk has accused ORT and the journalists of working with Western intelligence services to undermine and discredit the Belarussian government.

Russian-Japanese Mayors' Conference

· Mayors from 38 Russian and Japanese coastal cities situated around the Sea of Okhotsk and the Sea of Japan met today in the northern Japanese city of Hokkaido for a two-day conference, reported the Kyodo news agency. The opening address was given by Ryuichi Kidoura, mayor of Hakodate, a fishing port near Hokkaido and Japan's main island

of Honshu. Hakodate has a history of trade with Russia that spans more than 200 years.

Japan is represented by mayors from 27 cities, while mayors from 11 Russian cities are attending. The meeting is expected to conclude with a joint statement calling for the promotion of exchanges to deal with environmental problems and for the improvement of tourism and economic ties.

The mayors' conference has been held every two years since 1970.

Economy

Ruble = 5,821/$1.00 (NY rate)

Ruble = 5,824/$1.00 (CB rate)

Ruble = 5,816|5,832/$1.00 (buy|sell rates)

Investors' Rights Commission Meets

· The Russian state commission for the protection of investors' rights will examine all cases of infringement upon investors' rights in Russia, Prime Minister Viktor Chernomyrdin told the commission's first meeting on Tuesday. The commission, chaired by the prime minister, was set up by presidential decree in July.

Chernomyrdin said the commission has two main goals: to create an effective mechanism to protect the rights of investors; and to ensure state support for promising investment projects.

"The key goal is to win investors' confidence—

Today's News Highlights

Russia

Publishing Exec. Murdered

Surgutneftegaz Share Issues

Survey of Investors in Russia

European Republics

Russian Defense Min. in Ukraine IMF Loan for Ukraine

South Caucasus & Central Asia

World Bank Loan for Armenia

Kazakh Interior Min. to Akmola

World Bank Loan for Kazakh

Politics-Economics-Business

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Wednesday

August 27, 1997

Intercon's Daily

whether they are private individuals, firms, or companies—in the reliable and well-qualified rules of the game established by us," the prime minister is quoted by Itar-Tass as saying.

Yeltsin Creates Culture Channel

· Russian President Boris Yeltsin on Monday awarded the Russian State Television company (VGTRK) the franchise for a national television channel for cultural and educational programs. The decree calls for VGTRK and the St. Petersburg Mayor's Office to establish the new Kultura channel, which will start broadcasting on November 1, except in and around St. Petersburg. It will use frequencies now occupied by St. Petersburg Channel 5 on a nationwide business, but in St. Petersburg a local programmer will operate Channel 5.

The fully state-owned VGTRK currently operates the second national channel RTR. The first national channel, Russian Public Television (ORT) is 51 percent state-owned and the third channel is generally used by local stations. The fourth channel is occupied by Russian independent television NTV, which is owned by the Media-Most holding company, and the sixth channel, TV6-Moscow, is also privately-owned.

The presidential decree also calls for the state-run Petersburg Channel 5 to be reorganized into a joint-stock company with the St. Petersburg's Mayor Office controlling a 51 percent stake in the company. Kultura will broadcast Petersburg programs on culture and the arts for at least three hours a day.

Business

Publishing Executive Murdered

· The director of Drofa Publishers, Aleksandr KRUTIK, was killed by unidentified gunmen on Tuesday night outside his Moscow apartment building, reported Interfax. His bodyguard fired at the gunmen, but was uninjured in the attack.

Drofa Publisher's former deputy director, Vladimir Veshnyakov, was shot to death on November 14, 1996. His body was found in a parked car in Moscow's southwestern district.

Drofa Publishers puts out 80 percent of the educational literature published in Russia.

Oil Major Surgutneftegaz Plans Share Issue

· Russia's third largest oil producer Surgutneftegaz has registered a planned four-for-one bonus issue of ordinary and preferred shares with the Federal Commission for the Securities Market, reported Reuters today. The 23.99 billion share issue, including 18.49 billion ordinary shares and 5.5 billion preferred shares, will be distributed free to shareholders in proportion to current shares held on September 19, the company said in a statement.

The new share issue will have a 1,000 ruble nominal value and the issue is being taken in conjunction with a revaluation of assets, it said. This morning, Surgutneftegaz shares traded at $1.08, down from $1.139 per share.

Surgutneftegaz produced 33.3 million ton (666,000 barrels per day) of oil in 1996, roughly the same as the 1995 output level, and 1997 output is forecast at a similar level.

Moscow Underground Mall to Open Soon

· The new shopping and recreation center under central Moscow's Manezh Square will be unveiled on September 9, but shops will not open immediately and public admittance will be limited over the first week because of fears of overcrowding, reported Itar-Tass, citing Moscow Mayor Yuri Luzhkov. The underground shopping center cost $620 million and took 39 months to build. The new center is expected to pay for itself in about nine years.

The Moscow city government holds a 87.5 percent stake in the Manezh Square company, but expects its share to decrease to 24.5 percent by 2000.

The city government will set the working hours of the center at 10am to midnight, but the stores, restaurants, banks, and travel agencies are free to set their own schedules.

The city government is considering restoring the square's historic name of Okhotniye Ryady, which it had since the 16th century.

Luzhkov described the Manezh center as "splendid and unique," but noted that its construction was plagued by many problems. He criticized the company Mosproyekt-2, saying the city would never hire it for a major construction project again.

When you need to know it as it happens

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August 27, 1997

Intercon's Daily

ZDNet in Russian Internet Deal

· ACC Group, Russia's fastest growing Internet content provider and US company ZDNet announced on August 22 that they have agreed to jointly develop a new Internet information source on Russian business, called ZDNet Russia, according to a ZDNet press release. The Russian language-based Web site, available at www.zdnet.ru, will be launched in September.

ZDNet Russia will be 100 percent developed and maintained in Russia and will be available free of charge to all users on the Internet. In addition to product and software reviews, zdnet Russia will provide access to thousands of downloads pertinent to the local marketplace, a company and persons Database of "Who's Who" in Russia, tips and tricks for technical support, and a Russian local and a daily international news service delivered via E-mail.

ACC Group has developed Web sites for major companies such as Compaq, Merisel, and Comtek International among others, and is now an official Microsoft ICP (Internet Content Provider).

Two main sponsors have donated equipment and resources to help the development of ZDNet Russia: Compaq and Relcom.

Based in Cambridge, Mass., and San Francisco, Ziff-Davis' ZDNet division develops and maintains the ZDNet Web which offers informational sites for several countries.

Survey of US Investors in Russia

· A newly-released survey, conducted by US corporate and capital market communications firm Broadgate Consultants, found that US investors in Russian equities see strong long-term potential in the country, particularly for small- and medium-size companies, said a company press release.

Participants in the Russian market view the investment risk in Russia versus other emerging markets as relatively high, but three-quarters feel that the market outlook is better in Russia than in the other former Communist countries.

Despite scandals over recent privatization auctions and complaints about crime and corruption, the majority of survey participants, representing leading

investment firms with some $700 million worth of assets under management, say they are currently more optimistic about Russian stocks than they were six months ago.

The investment risks most cited by respondents were: political instability; shareholder rights issues; and crime and corruption. Despite these risks, over 80 percent of the US market participants surveyed expected to maintain or increase their allocation to Russia over the next 12 months.

Nearly 90 percent of respondents said that Russian companies fail to provide adequate financial, operating, and strategic information. In the absence of information from Russian companies, market participants say that they rely mainly on financial publications, Russian brokers/affiliates, and in-house research. The disproportionate information available on larger Russian companies versus the smaller and medium size companies is also a concern to US investors.

In addition, the majority of respondents were not satisfied with the progress being made by Russian companies to improve corporate governance standards. Nearly 70 percent of respondents rate the Russian government's efforts to enforce shareholder-friendly legislation as fair to poor.

European Republics

Russian Defense Minister in Ukraine

· Russian Defense Minister Igor Sergeyev, in Kiev on a three-day official visit, on Tuesday signed two accords on cooperation in military intelligence with his Ukrainian counterpart Aleksandr Kuzmuk, reported Interfax. The agreements commit both sides to refrain from conducting intelligence activity against each other.

IMF Approves $542 Million for Ukraine

· The International Monetary Fund (IMF) on Monday approved a one-year standby credit of $542 million for Ukraine to support its economic reform program, said the IMF. Some $49 million will be made available immediately.

The Fund credit will back a 1997/98 program to reduce inflation, increase Ukraine's international reserves, and lay the foundation for the country's

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Intercon's Daily

economic recovery and growth through structural reforms. The reform program aims to cut inflation from 40 percent in 1996 to 12 percent in 1998 and raise the country's gross international reserves from the equivalent of 5.2 weeks of imports in 1996 to 7.4 weeks of imports in 1998.

The program also foresees a reduction in the consolidated budget deficit to below 4.6 percent of gross domestic product (GDP) in 1997 and 4.5 percent of GDP in 1998.

New Air Canada Flights to Ukraine

· Air Canada announced on August 19 that it is introducing codeshare service to Ukraine from Toronto, Calgary, and Vancouver, said a company press release. New services to Kiev and Odessa begin operations on August 25 via Frankfurt in cooperation with Lufthansa.

Motorola Ups Stake in Lithuanian Telecom

· US Motorola Inc.'s Network Management Group increased its stake in Omnitel, a Lithuania-based telecommunications company, to more than 45 percent from 38 percent, reported Dow Jones. Terms were not disclosed.

Motorola NMG and Lithuania investors formed Omnitel in 1994 to run a Global Systems for Mobile (GSM) communications digital cellular network throughout Lithuania. In addition to the GSM system, Omnitel operates a paging network and an earth station that provides both voice and data transmissions to North America.

South Caucasus & Central Asia

World Bank Loan for Armenia

· The World Bank on Tuesday approved a $60 million Second Structural Adjustment Credit (SAC II) and a $5 million Second Structural Adjustment Technical Assistant Credit (SATAC II) to Armenia, said a World Bank press release. The SAC II will support the Armenian government's program to consolidate

macroeconomic stability and to lay the foundations for sustained private-sector led growth. SATAC II will be used to finance technical assistance in support of the government's economic reform programs.

Kazakh Govt. Moving to New Capital

· Kazakhstan's Interior Ministry has moved in the city of Akmola, which is slated to become the country's new capital. Some 150 members of the staff and Deputy Interior Minister Amanzhol Beisenov arrived from Almaty over the weekend and were settled into new apartments, reported Itar-Tass. So far, out of 28 ministries and agencies scheduled to make the move, only employees of the ministries of interior, agriculture, transport, and communications and the National agency for press and mass media affairs have arrived in the new capital.

Many government officials, as well as private organizations and companies, are reluctant to move their operations to Akmola because of its remote location, poor climate, and lack of development. Moreover, the government program of construction of housing and administrative buildings is far behind schedule and short of funds.

Kazakh President Nursultan Nazarbayev officially announced that he will occupy his working residency in Akmola on October 10.

World Bank Loan for Kazakhstan

· The World Bank on Tuesday approved a $230 million Public Sector Resource Management Adjustment Loan to Kazakhstan in support of the government's institutional and policy reform program, said a World Bank press release.

The reforms are designed to increase budget revenues through improved resource mobilization and better target government spending through a more efficient use of the limited resources. New policies on housing and related utilities will be introduced to eliminate the heavy burden of subsidies that these activities have placed on the government's budget.

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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