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 7, 1997

Russian Federation


Yeltsin and Niyazov Meet on Energy

· Russian President Boris Yeltsin met today in Moscow with Turkmen President Saparmurat Niyazov to discuss cooperation in the oil and gas sectors and the legal status of the Caspian Sea. At a press conference after the meeting, YELTSIN reiterated Russia's decision to pull out of an agreement to develop an oilfield in a disputed area of the Caspian Sea. Russian and Azeri companies signed an agreement on the Kyapaz oil deposit in June, but Turkmenistan demanded that the accord be canceled, challenging the deposit's ownership. "The erroneous accord is annulled," Yeltsin told Niyazov.

Also at the meeting, Yeltsin agreed to pay a state visit to Turkmenistan in March or April 1998.

Maskhadov Offers Deal to Kidnappers

· Chechen President Aslan Maskhadov today offered amnesty to kidnappers in the republic, provided that they release their hostages by August 10, reported Reuters. Kidnapping has become an epidemic problem in Chechnya with new hostage taking of Russian servicemen, construction workers, and journalists, as well as foreign aid workers and reporters, occurring regularly.

Some of the more high profile recent abductions include two Britons working for the Center for Peacemaking and Development, which helps treat Chechen children suffering from postwar trauma, taken in July, and a crew from Russian independent television NTV, including well known correspondent Yelena MASYUK, missing since May.

Russian serviceman Sergei Dyakun, taken captive in Chechnya on June 26 has been freed by Russian

interior ministry forces, reported Interfax. He was the fifth Russian serviceman to be released from captivity in Chechnya this week.

On Wednesday, a Grozny district police station was attacked by unidentified gunmen who escaped taking the chief of the station with them, said Itar-Tass.


Ruble = 5,805/$1.00 (NY rate)

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

Ruble = 5,795|5,814/$1.00 (buy|sell rates)

Public Health Sector Reform Planned

· The Russian government decided today to approve in principle a concept for the development of the country's public health system and medical science, and is scheduled to finalize it in two weeks, reported Itar-Tass. According to Russian Health Minister Tatyana Dmitrieva, the aim is to bring down the rate of incidence of disease and mortality among the Russian population.

The concept has two stages. In 1997-2000, it aims to create the organizational and legal basis for the development of public health and medical science, and in 2000-2005, it aims to implement state programs, introduce new technologies for effective treatments, diagnostics, and preventative measures, and complete the structural reorganization of the health system.

Plans provide for changing the system of financing public health by

Today's News Highlights


Health Sector Reforms Planned

Russian Poultry Sector Update

Maskhadov Offers Amnesty

South Caucasus & Central Asia

Georgia Says no Chechens

US Co. in Azeri Oil Deal

CIPCO Drilling in Caspian

Azeri Oil and Gas Output

Kazakh Plan Nuke Plant

German Co. in Kazakhstan




August 7, 1997

Intercon's Daily

cutting funds from budgets at all levels with a simultaneous increase in funds from extra-budgetary sources and from citizens' own resources, she said.

Russian Poultry Sector Moving Forward

· Russia's poultry sector is still declining, but the picture is mixed, according to a report from the US agricultural attaché in Moscow, cited by Futures World News (FWN). In general, Russian poultry plants that are cooperating with financially strong Russian or foreign companies are increasing production, while those without outside support are doing poorly. Foreign companies have invested in poultry plants in Moscow, Kursk, Sverdlovsk, and Lipetsk oblasts, and in a few other areas of Russia. Federal and Moscow city support for poultry operations has also had a positive effect.

Although imports continue to be strong, there are signs of a bottoming out of domestic production. While the attaché does not expect any significant increase in total Russian poultry production in the near future, further declines in output are not expected to be as steep as they have been over the last six years.

The US continues to be the largest exporter of poultry to Russia, although imports from other countries are rising. Contrary to US data, Russian data show that imports of poultry from the US declined in 1996 over 1995. There appears to be a slowing of import growth, and imports of some categories of poultry are declining so far in 1997. In the attaché's opinion, this is not due to a weakening of consumer demand in Russia.

However, there is a belief among Russian government officials that fear of possible tariff hikes on imports will motivate Americans and others to invest in the poultry industry in Russia.

Russian newspapers have recently run several articles devoted to the problem of poultry meat production and imports. Their tone is almost always negative toward imports, and particularly toward American products. The main idea is that chicken legs produced in the US are dangerous for one's health. This is a change from as recently as last year, when it was proclaimed that US producers were dumping subsidized product. The focus has thus shifted from trade practices to food safety.

Nonetheless, Russians working in the poultry industry continue to believe that US producers are recipients of big government subsidies.

In the relatively progressive Novaya Gazeta newspaper, a recent article, titled "Mixed Feed for Russians," states: "At all counters in Russian food stores there are `Bush legs'—symbols of an epoch. Bush legs are not used as human food in the US. Saturated with chemicals and harmful mixtures, Bush legs are sold as feed for animals (dogs and others). Destitute and homeless persons eat them only because of their low price—$0.40 per kilo."

"In Russia this animal feed is sold at a price of $2 per kilo, providing importers with high profits," the article continued. "The most dangerous thing is that new viruses and diseases, heretofore unknown in Russia, are being introduced via imported poultry meat."

Lenptitsprom director Yuri Trusov said recently: "Poultry imports into Russia were 800,000 tons more last year than in 1990. This isn't just happenstance; it's a concrete, deliberate Western policy toward Russia. A real economic war is going on. In this war, no one is shooting, but there is a headquarters where the operations planning is done; there are attackers and defenders; there are winners and losers."

In the same interview, Trusov admitted that Soviet poultry production was inefficient. He stated, however that the Russian industry's productivity has risen to world levels, with broilers growing twice as fast as they did five years ago, adding 40 grams per day. The big problem for Russian production is feed grains, which cost almost twice as much in Russia as in America. The US wholesale price is cheaper than the Russian price, he says, because Russian input costs are higher—feeds, gas, electricity. This recognition of reality is a turnaround from earlier official statements to the effect that American prices are low because of government subsidies.

The general director of Russian poultry association Plemptitsa, Vladimir Fisinin, blames US poultry exports for the Russian industry's decline, saying that the credits that support the trade are available only with the help of bribes paid to corrupt Russian officials, and that support for domestic production has practically stopped. The result, he says, is that Russia can no longer live without Bush legs.

When you need to know it as it happens




August 7, 1997

Intercon's Daily

Large US exporters are having difficulty selling leg quarters deep inside Russia. Some efforts by importers to circumnavigate costly regulations have been thwarted by an increasingly vigilant border control. Profits for US and Russian traders alike have been falling for several years and currently are very thin.

Many traders have left the market; the ones who remain need to sell very large volumes to maintain profitability. While sales today are strong, negative articles in the Russian press may hurt future US poultry sales in this market.

US companies urgently need to counter the harmful effects of the negative campaign in the press which appears to be intensifying, according to the attaché. The industry would benefit by conducting a generic advertising campaign to inform Russian consumers about the high quality of US poultry. It should be stressed that poultry exported to Russia is exactly the same product that is consumed in the US by Americans of all ages, national origins, and economic levels.

While frozen leg quarters account for the largest volume and value of American sales to Russia, some companies are beginning to promote their higher-value products. European companies are selling high-value poultry products also, and are competitive with American companies in product lines that have the most value added. The market for intermediate products, such as packaged frozen parts, still appears to be dominated by American companies.

Meanwhile, Chechen Deputy Prime Minister Akhmed ZAKAYEV arrived in Tblisi today to discuss Chechen-Georgian relations with the secretary of the Georgian Security Council, reported Russian independent television NTV. He is also expected to meet with SHEVARDNADZE.

ZAKAYEV also denied that a group of Chechen guerrillas is trying to prevent a meeting between the two presidents, but admitted that some "minor provocations" could occur. He said that the date and agenda for the presidential meeting will be set during his talks with SHEVARDNADZE.

In addition, Confederation of Caucasian Peoples president Yusup Soslanbekov said today that a North Caucasian volunteer militia is ready to deploy along the Inguri river in Abkhazia, if Russian peacekeepers withdraw, reported Itar-Tass. He met today with Abkhazian leader Vladislav Ardzinba in Sukhumi, it said. He said that his group would only deploy in Abkhazia if the Russians left.

The Russian peacekeepers' mandate ended on July 31, but they will apparently remain in place until the next CIS summit, scheduled in September, which will decided whether to extend the mandate.

Also today, Gen. John SHALIKASHVILI, chairman of the US Joint Chiefs of Staff, told reporters in Tblisi that the US will help mediate in the conflict between Georgia and Abkhazia, reported Interfax. The US supports the peaceful restoration of Georgia's territorial integrity, the General was quoted as saying.

During his three-day visit to Georgia, SHALIKASHVILI held talks with Georgian Defense Minister Vardiko NADIBAIDZE and President SHEVARDNADZE on military cooperation. He said that the US will offer help in training Georgian military personnel.

US Investment Co. in Azeri Oil Deal

· Palm Beach, Calif.-based investment company Nevtah Capital Management announced on Wednesday that it has won an 80 percent stake in an unnamed oilfield in Azerbaijan, reported Reuters. The company said the oilfield had potential recoverable oil reserves of 100 million barrels and that it was located 75 kms north of Baku, but did not indicate if it was offshore in the Caspian Sea.

South Caucasus & Central Asia

Georgia Says No Chechens Entered

· Georgian border guard troops commander Valery CHKHEIDZE on Wednesday denied reports that an armed group of Chechen militants had entered Georgia, reported Itar-Tass. Reports on Georgian television said that an armed group, sent by the Confederation of Caucasian Peoples, had entered Georgia with the intention of disrupting a meeting between Chechen president Aslan MASKHADOV and Georgian President Eduard SHEVARDNADZE.

"There has been registered no infiltration of armed groups from Chechnya to Georgia," CHZHEIDZE told Itar-Tass.

When you need to know it as it happens




August 7, 1997

Intercon's Daily

Nevtah president Daniel KESONEN told Reuters that the company would raise funding from European money managers to finance development of the field. The field was granted to Nevtah by the Azeri state oil company Socar and the company's joint venture partner in the project is Chinese company China Hua Yuan, he said. The size of the reserves were confirmed by Pen Engineering of Istanbul.

KESONEN said that Nevtah was also looking at potential oilfields in Georgia.

CIPCO Begins Drilling in Azeri Caspian

· The Caspian International Petroleum Co. (CIPCO) announced on Wednesday that is has began drilling its first exploratory well (KPS-1) on the Karabakh prospect offshore Azerbaijan in the Caspian Sea, said a Pennzoil press release. Participants in the CIPCO project include: Pennzoil (30 percent), Russia's Lukoil (7.5 percent), Italy's Agip (five percent) and LukAgip, a subsidiary of Lukoil and Agip (50 percent). In addition, an affiliate of the Azeri state oil company SOCAR has a 7.5 percent interest as a contractor party.

The well is located about 125 kilometers east of Baku and will be drilled by the Caspian Drilling Company's semi-submersible Dada Gorgud. Drilling, including testing, is expected to last about 90 days. KPS-1, which will be drilled in water depth of 180 meters, is planned to reach a total depth of about 4,200 meters.

CIPCO acquired and processed 626 square kilometers of 3D seismic during 1996. CIPCO contracted with Caspian Geophysical, an Azeri-American joint venture, to conduct the seismic work.

Azeri Oil And Gas Output Down Slightly

· The Azeri state oil company SOCAR produced a total of 5.2 million tons of oil and 3.5 billion cubic meters of natural gas in the first seven months of 1997, reported Xinhua on Wednesday. The gas production figure represents a decrease of 3.3 percent, compared with the same period of 1996.

Azerbaijan's Caspian Sea fields produced 4.3 million tons of oil and 3.4 billion cubic meters of natural gas during January-July.

Deliveries of crude oil for refining totaled 5.1 million tons, down 1.1 percent from the same period last year; for gas the corresponding figure was 2.9 billion cubic meters, 7.8 percent less.

Overall, SOCAR drilled 85,500 meters, 18.5 percent less than planned, but 12.8 percent more than during the same period last year. It drilled 39,000 meters at offshore sites and 46,500 on land.

In 1996, SOCAR produced 9.1 million tons of oil and 6.3 billion cubic meters of natural gas.

Kazakhstan to Build a Nuclear Power Plant

· The Kazakh government has approved a plan to install six nuclear reactors at its first nuclear power plant by the year 2030, reported RFE/RL Newsline. The new Russian-made VVER reactors will be installed at a power plant on the southern shore of Lake Balkash. The nuclear project is estimated to cost about $5 billion.

Kazakhstan is seeking to lessen its dependence on energy deliveries from Russia and Uzbekistan.

German Firm Plans Construction in Kazakhstan

· Kazakh Prime Minister Akezhan Kazhegeldin met with officials of German construction company Walter Bau AG on Wednesday, reported Itar-Tass. The German executives expressed an interest in making investments in Kazakhstan because the country's credit rating, according to them, makes its possible to attract long-term loans from international financial institutions for the implementation of concrete projects, it said.

Walter Bau is looking at several projects including the construction of a large hydroelectric power station in the northeastern Kazakhstan, an international airport in the city of Akmola, and the electrification of some stretches of Kazakhstan's railways.

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

available for non-profit institutions.

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.

When you need to know it as it happens