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 6, 1997

Russian Federation

Politics

Yeltsin Makes Up with Patriarch Aleksei

· In an effort to patch up relations with the Russian Orthodox Church, President Boris YELTSIN today attended the consecration ceremony of the St. Boris and Gleb chapel on Arbat Square in Moscow. YELTSIN on Tuesday held talks with Patriarch Aleksei to explain his veto of a controversial religion bill favored by the Church.

Following today's ceremony, YELTSIN and Aleksei held a joint news conference to announce that they had overcome the disagreements caused by the bill, reported NTV. A conciliation commission will be set up that will include representatives of the Church, the State Duma, the presidential administration, and the government, said YELTSIN. The commission will rework the bill to remove articles deemed anti-constitutional, he said.

Official Threatens Pipeline Around Chechnya

· Concerned about the inability to finalize an agreement to transport Azeri oil across Chechnya, Russian Deputy Fuel and Energy Minister Sergei KIRIYENKO said today that Moscow was considering building a pipeline around Chechnya, reported NTV. He said that the Ministry is now discussing six draft projects for a proposed pipeline bypassing Chechnya, noting that construction would take about two years and cost $250 million. The new section of pipeline would pass through the Republic of Dagestan, which borders Chechnya to the east.

Moscow and Grozny have signed an agreement ensuring the safety of the pipeline, repairs to the line, and other details of oil transport, but have not been able to agree on the size of transit fees that Chechnya would earn.

Economy

Ruble = 5,804.5/$1.00 (NY rate)

Ruble = 5,803/$1.00 (CB rate)

Ruble = 5,795|5,811/$1.00 (buy|sell rates)

Norilsk Stake Goes to Oneximbank Affiliate

· The Russian firm ZAO Svift has won a tender for a 38 percent stake in the metals giant Norilsk Nikel with a bid of ECU 236 million (about $250 million), reported Prime-Tass news agency. The only other bid was forwarded by unknown Russian firm Advanced Industrial Technologies (PPT), which offered ECU 171 million.

The winning company was represented at the bidding by Vladimir Shmatovich, manager of Interros holding company, an affiliate of Oneximbank. The seller of the stake was MFK bank (also an affiliate of Oneximbank), which took over management of the state-owned 38 percent stake in Norilsk Nikel as the result of a shares-for-loans deal in November 1995 for $170 million.

Under the terms of the tender, the winner must repay the credit of $170, invest $300 million in Norilsk, and pay off $69 million in Norilsk's tax and pension obligations.

The auction was completed despite objections by Prime Minister Viktor Chernomyrdin who called for the bidding to be suspended on Monday. The Prime Minister was persuaded to let the

Today's News Highlights

Russia

Livshits Says No Growth in 97

Uralsvyazinform to Issue ADRs

Commercial Airline News

Spacehab Contract for Energia

South Caucasus & Central Asia

Abkhazia Executes Georgians

Lukoil Still in Azeri Deal

Iran on Caspian Development

NEC Center in Uzbekistan

Almaty Cancels Uranium Deal

Politics-Economics-Business

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Wednesday

August 6, 1997

Intercon's Daily

announcement of the winner go forward, but reportedly has still ordered that General Prosecutor's office to investigate the legality of the share sale. CHERNOMYRDIN also challenged the legality, on no specific grounds, of the recent tender for a 25 percent stake in telecommunications holding company Svyazinvest. Both auctions seem to have awarded the stake to the highest bidders and the premier's objections appear to be to no avail.

Livshits Says Growth Unlikely in 1997

· Aleksandr LIVSHITS, the deputy head of the presidential administration and a former finance minister, told Ekho Moskvy radio on Tuesday that an increase in gross domestic product (GDP) this year is unlikely, reported Interfax. "I don't think we shall manage to ensure real economic growth either this year or in 1998," he is quoted as saying. "Without serious changes in policy, aimed exclusively at stimulating economic development, one can't expect any economic upsurge."

Speaking about foreign investment, LIVSHITS said that property in Russia "often fails to attract investments." He also noted that the fulfillment of investment conditions attached to the sale of shares "leaves much to be desired" in many cases.

Russian Regional Telecom to Issue ADRs

· Russian regional telecommunications provider Uralsvyazinform has received permission from the US Security and Exchanges Commission (SEC) to issue level-one American Depositary Receipts (ADRs), reported Reuters. One ADR will cover 200 ordinary shares with a face value of 100 rubles. The ADR program could cover up to 42 percent of shares, said a company spokesman.

The Bank of New York is acting as depository for the placement. Clifford Chance is the legal consultant. Level-one ADRs are share receipts issued on existing shares to allow trade abroad. They do not raise new capital.

Uralsvyazinform first deputy chief executive Aleksandr VOKHMIN told Reuters that the company also hoped to sell up to 10 percent of its shares to Western investors in October in a separate deal, which is still being worked out. No new shares will be issued for the sale, he said.

Russian state telecommunications holding company Svyazinvest owns a 51 percent controlling stake in Uralsvyazinform.

Business

PNY Distribution Deal for Russia

· Parsippany, NJ-based PNY Technologies, Inc., a designer, manufacturer, and distributor of memory upgrade products, on Tuesday announced the signing of a distribution agreement between its German subsidiary, PNY Technologies GmbH, and Moscow-based distributor PatriArch Memory Enhancements, Ltd., said a company press release. PatriArch was founded in 1991 as an IBM Businesses Partner (reseller) and is now specialized as a memory distributor for integrators specializing in Compaq, Hewlett-Packard, IBM, Digital, and Sun systems.

Under the terms of the agreement, PatriArch will distribute PNY memory products throughout the former Soviet republics, including the Baltic states.

According to PatriArch product manager Vadim Mayorov, "The Russian memory market is gradually evolving from being driven by price alone. More and more Russian corporate end users and IT managers are specifying branded memory from reliable manufacturers. Our goal at PatriArch is to establish PNY as the memory brand of choice in the Russian corporate sector."

PNY memory products sold in Russia are designed, manufactured, and shipped from its ISO-9002 certified European headquarters in Bordeaux, France.

Commercial Airline Newsbriefs

· Russian Aeroflot International Airlines announced on Monday that it will seek to reestablish routes within Russia and the former Soviet republics that were lost when the former Soviet monopoly was broken up in 1992, reported Reuters. Since the breakup, Aeroflot has mainly concentrated on developing international routes and currently flies to only 13 destinations in Russia and the former Soviet republics.

Aeroflot deputy marketing director Leonid MOKHOV said the airline planned to double the number of passengers carried on domestic and regional routes to 260,000 this year, from 130,000 in 1996.

When you need to know it as it happens

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Over the past two week, Aeroflot has begun scheduled flights from Moscow to Arkhangelsk and Murmansk in the Russian northwest and to the Far Eastern port of Vladivostok.

Later this month, it will launch flights between Moscow and Petropavlovsk-Kamchatsky in the Russian Far East and from Moscow to Kaliningrad, the Russian exclave on the Baltic Sea.

In addition, Aeroflot plans to introduce regular passenger service from Bryansk in central Russia to Istanbul and from Murmansk to Amsterdam.

Aeroflot has ceased flights between Moscow and Phnom Penh, Cambodia, because of decreased demand for the service and problems resulting from the armed conflict in that country, Itar-Tass reported today. Aeroflot was running two regular flights between Moscow and Phnom Penh a month. The final decision to suspend air service was prompted by the damage caused to the airline company's office in the Phnom Penh airport as a result of armed clashes among rival political parties in July.

North Korea's Air Korea company opened an aviation representation in Vladivostok this week and hopes operate two flights a week between Pyongyang and Vladivostok, reported Itar-Tass.

Spacehab Awards Contract to RSC Energia

· Vienna, Virg.-based SPACEHAB Inc. announced on Monday that its has awarded contracts to RSC-Energia of Russia and Daimler-Benz Aerospace of Germany for detailed design and production of the SPACEHAB Integrated Cargo Carrier (ICC)™ System, said a company press release. The ICC systems is designed to be used on the Space Shuttle to carry external, unpressurized cargo to the International Space Station and augments the SPACEHAB Modules currently being used by NASA to carry re-supply items to Russia's Mir Space Station.

Under the terms of the contracts announced today, RSC-Energia will develop and produce the Unpressurized Cargo Pallet, which bridges across the Shuttle Payload bay above the tunnel leading to the SPACEHAB modules. Production of the flight hardware is expected to begin by the end of 1997 with delivery scheduled for mid-1999.

South Caucasus & Central Asia

Abkhazia Executes Georgians

· Police in Georgia's separatist region of Abkhazia on Monday executed by firing squad four Georgians living in Abkhazia who were accused of sheltering members of the Georgian guerrilla group, the White Legion, reported Russian television RTR. The execution was originally reported by the Argumenti i Fakty news agency, which cited an anonymous member of the guerrilla group.

The chairman of Abkhazia's supreme council confirmed the executions, said RTR.

Abkhazian officials have blamed the legion, a Georgian guerrilla formation seeking to restore Georgian control over Abkhazia, for a number of violent incidents in the region.

Georgian television reported today that a group of several dozen Chechen gunmen has broken into Georgia from Chechnya, according to Itar-Tass. It was not specified when the militants had entered Georgia and where they were staying.

Georgian TV said that the armed group had been sent on instructions from the Confederation of Caucasian Peoples to prevent a meeting between Chechen President Aslan Maskhadov and Georgian President Eduard Shevardnadze.

In addition to the Chechen militants, the group includes Georgian gunmen, said the TV report. The entire group is led by a man of Georgian nationality whose name was not disclosed, said Itar-Tass.

Lukoil Says Still in Azeri Oil Deal

· Russian oil conglomerate Lukoil has denied reports that it is pulling out of an agreement with Azerbaijan to develop the Kyapaz oilfield in the Caspian Sea, insisting that it will honor the deal, said today's Financial Times. Lukoil, Russian Rosneft, and Azeri state oil company SOCAR signed a agreement on the Kyapaz deposit in Moscow in early July.

The government of Turkmenistan immediately protested the deal, calling it illegal because the Kyapaz deposit (called Serdar by Turkmenistan) is located in a disputed area of the Caspian.

When you need to know it as it happens

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Wednesday

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Intercon's Daily

As a result of continued objections to the deal by Ashgabat, the Russian Foreign Ministry announced last week that Russia was not go ahead. Rosneft then announced that it was pulling out. It seems that Lukoil has not similarly bowed to the pressure from the Russian government.

Iran Warns Against Caspian Development

· Apparently upset about four major US-Azeri oil contracts for development of Caspian Sea deposits concluded last week, Iran on Tuesday warned against any unilateral action by the littoral states and foreign firms in developing Caspian Sea resources.

Iranian Deputy Foreign Minister Mahmoud Vaezi declared that any oil contract between the Caspian littoral states and foreign firms without taking into consideration the interests of the other countries concerned lacks a legal basis and will be problematic, reported Xinhua, citing the official Islamic Republic news agency IRNA.

"Certain states have caused unrest in the sensitive region by signing unilateral contracts with foreign companies," VAEZI is quoted as saying.

NEC Opens Training Center in Uzbekistan

· Japan's NEC will open a communication training center in Tashkent in October, reported Itar-Tass. In March, the company opened a similar communications center in St. Petersburg. The NEC is planning to teach a large number of Russian and Uzbek engineers and technical experts to use the latest communications equipment.

The center will offer instruction "by highly qualified experts" from NEC who will work on a regular basis in both cities. The cost of the Japanese equipment to be installed at the NEC training center in Tashkent was estimated at approximately $2 million.

NEC and the Mitsui Bussan company are involved in a large-scale project to modernize the telephone exchange infrastructure in Uzbekistan.

Kazakh Govt. Cancels Uranium Contract

· The government of Kazakhstan has cancelled an agreement with Canada's World Wide Minerals Ltd. to manage a uranium company, but the compnay has vowed to fight the decision, reported Reuters. "The government saw no prospects for furrher cooperation with this company," state property committee official Birzhan MADIYEV told a news conference on Tuesday.

In October 1996, Kazakhstan and Toronto-based World Wide signed a contract to manage the Tselinny uranium plant in northern Kazakhstan.

MADIYEV said that, under the contract, World Wide was required to pay off Tselinny's pension and salary arrears within 15 months, but it had failed to make regular payments.

World Wide, which is represented at Tselinny by its subsidiary KazUran Corp., said it has been paying wages on time and has managed to stabilized production at the plant. It also said that the unilateral annulment of the deal contradicts a clause in the contract that requires 90 days prior notification before such an action is taken.

The company said it will take its case to an international arbitration court, if the situation is not resolved.

Intercon reported last month that World Wide had temporarily suspended operations at the uranium plant because of a delay in obtaining a license to export the uranium to the US. The company said that under its agreement to manage Tselinny, it is entitled to export all the uranium produced at the plant, if it obtains the required licenses. However, the company complained that it was unable to get past Kazakh red tape.

At that time, World Wide said that another uranium company claimed the Kazakh government had granted it the exclusive right to market Kazakh uranium in the US.

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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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.

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