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

Friday, August 8, 1997

Today's Rossiiskiye Vesti noted that YELTSIN has some very good reasons for not supporting the idea of imposing direct presidential rule in Prigorodny. First, a state of emergency means, in actual fact, the start of combat operations, said the paper. Second, direct rule, to be imposed under the pressure of Ingush leaders, will provoke bitter hatred for Moscow and Russians among Ossetians who, for historic reasons, are accustomed to regard them as if not "older brothers," then at least geopolitical allies, it said. Last but not least, the paper believes that any change in the status of the Prigorodny district will objectively help to strengthen the influence in the region of not only Ingushetia, but also of Chechnya.

The Prigorodny district is not only a plot of land, noted Rossiiskiye Vesti, it is "the gate to the Caucasus," the Darya river gorge. It is the starting point of the Georgian Military Highway, the main transport route in the region.

Russian and Japanese Governors Meet

· Russian Federation Council speaker (upper house of parliament, composed of regional governors) Yegor Stroyev and other Council members met today with the chairman of the Japanese National Council of Governors Yoshikiko Tsuchiya to discuss establishing direct relations between Russian and Japanese regions, reported Itar-Tass. This is "a substantial breakthrough in relations," said Russian Union of Governors chairman Anatoly Tyazhlov, also governor of Moscow Oblast.

Russian Federation

Politics

Yeltsin Seeks Peace in N. Caucasus

· Russian President Boris Yeltsin met with the presidents of North Ossetia and Ingushetia in the Kremlin on Friday to discuss ways to settle the tense situation in the Prigorodny district. Yeltsin told Ingush President Ruslan Aushev and North Ossetian President Akhsarbek GalaZov he wanted them to sign an agreement ruling out any territorial claims against each other for 15-20 years. "I would like you to put an end to your undeclared war today," RIA Novosti quoted him as saying.

YELTSIN told the men to comply or risk losing his support in upcoming regional elections. "Either you will have the backing of the Russian president during the election campaign or you will be denied it," he said. "I think this is very serious. So you should cast aside your strife and sign an agreement which has been drafted but remains unsigned." Both presidents are up for re-election next year.

In 1992, some 200 people were killed in fighting between Ingushetians and Ossetians in Prigorodny and violence has flared again in recent weeks. The district, now a part of North Ossetia, formerly belonged to Ingushetia. The Ingush were deported from their homes in 1944 by Soviet leader Josef STALIN and returned in 1950 to find that parts of their land, including Prigorodny, had been placed under the jurisdiction of North Ossetia. Clashes erupted when Ingush people attempted to resettle in the area.

Aushev had called for the imposition of direct presidential rule on the Prigorodny district, but the Russian president said he has no plans for the build up of interior troops and armed forces in the two North Caucasian republics.

Today's News Highlights

Russia

Potanin on Rosneft Sale

Def. Min. to Pay Wage Arrears

Toyota Plans Moscow Venture

Delta to Moscow Petersburg

European Republics

NATO to Pay for R&D

New Latvian Govt Approved

South Caucasus & Central Asia

ConAgro in Georgia Oil Deal

Central Asian Eco. Cooperation

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Friday

August 8, 1997

Intercon's Daily

Ruble = 5,806/$1.00 (NY rate)

Ruble = 5,806/$1.00 (CB rate)

Ruble = 5,796|5,816/$1.00 (buy|sell rates)

tion. "There is a real competition in the economy and we believe that whether or not our group flourishes now depends on the strength of our management and the sense of our strategy rather than our political connections," POTANIN told FT.

Defense Ministry Wages Almost Paid

· Russian Defense Minister Igor Sergeyev told reporters on Thursday that the ministry will repay the wage arrears to servicemen by August 20, reported Itar-Tass. According to Sergeyev, the ministry has already fully repaid back wages for May and 40-50 percent of June wages.

Business

Toyota Plans Russian Production

· Japanese automaker Toyota Corp. is considering the launching of a Toyota assembly line at Moscow's Tushinsky auto factory, a former defense plant, reported Itar-Tass today, citing Japanese newspapers. Toyota is also planning to set up a branch in Russia to sell Toyota cars within a year or two.

The Tushinsky project will likely involve the assembly on a Moscow line of High Ace minibuses which are popular with Japanese small and medium-size businesses. Toyota reportedly plans to re-equip the Russian plant to produce about 5,000 Toyotas a year assembled from Japanese-made components.

Toyota will to set up a joint venture in Moscow, with 70 percent Japanese capital, to implement the project. The first Russian-manufactured Toyotas could roll off the assembly line in late 1998.

Delta/Swissair to Fly to Moscow, Petersburg

· Delta Air Lines announced Wednesday that it has started code-share service from Zurich to both Moscow and St. Petersburg, said a company press release. Delta began placing its code on Swissair's four weekly, non-stop flights between Zurich and St. Petersburg, as well as on the two daily flights from Zurich to Moscow, on August 1, 1997.

Mar Apr May Jun Jul Aug

Potanin Now Seeks Rosneft Stake

· Russian commercial bank Oneximbank will participate in an upcoming tender for shares of Russian state oil holding company Rosneft, bank president Vladimir POTANIN said in an interview with the Financial Times on Thursday. Rosneft, which accounts for five percent of Russia's total crude oil output, will fit in well with Oneximbank's existing oil sector interests, which are mainly concentrated in the Far East, he said.

In the past few weeks, Oneximbank affiliates have won two controversial share auctions, acquiring a 25 percent stake in telecom company Svyazinvest and 38 percent of metals producer Norilsk Nikel.

The Russian government has not yet set the timetable for the Rosneft sale, nor decided what percentage of the company it will auction off, but the tender is expected before the end of the year. The sale could bring in as much as $1 billion for the Russian budget and is expected to be a further test of the Moscow's new commitment to sell assets openly and for the highest price, said FT.

POTANIN told the newspaper that the Rosneft sale will be the most fiercely contested privatization yet, with local banks and oil companies, as well as foreign strategic and portfolio investors, bidding.

He also said that the "banker's war," as it is known in the Russian press, was a sign that the country's economy was developing in a new competitive direc

European Republics

NATO to Fund Partners' R&D

· The NATO Science Committee in Brussels announced today the launching of a "Science for Peace Program" which aims to enable scientists in

Politics-Economics-Business

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Intercon's Daily

NATO partner countries to engage in applied research and development projects, as well as to assist partner countries in their transition to market-oriented and environmentally-sound economies, reported Xinhua. It will also contribute to the overall stability and peace in the whole region, said a NATO press release.

The Science for Peace projects, lasting 3-5 years, will be jointly carried out among the 16 NATO members and its 28 partners. Projects involving more than one partner country will be encouraged. NATO money will be funneled to such sectors as research equipment, training of project-related personnel, and project-specific consumables.

The partner countries eligible for the funds include all 15 former Soviet republics.

Case Completes Delivery to Ukraine

· Racine, Wisc.-based Case Corp. on Thursday said it has completed a large shipment of combines and high-horsepower tractors to Ukraine this month in a $78 million sale, said a Case press release. This marks Case's second large sale of equipment to Ukraine and builds on the company's growing presence in the agricultural equipment market in the Commonwealth of Independent States (CIS).

The sale includes 369 Axial-Flow® combines, 45 Magnum™ tractors, and related parts. The equipment was purchased by the Ukrainian Agrarian Mercantile Exchange, a grain trading company, financed by Societe Generale, and backed by the US Export-Import Bank.

The combines and tractors will be used to harvest crops throughout the country by Ukrainian custom, or contract, harvesting companies. A network of service centers will be established in the country and will be staffed by Case service specialists, who will remain in Ukraine for two years and train local service technicians.

Case has now sold nearly $300 million of agricultural equipment into the CIS. Case is also developing a manufacturing presence in the region through a joint venture with Uzbekistan's largest agricultural equipment maker, Tashelmash. The company's first major sale into the CIS was 100 combines to Ukraine in 1993.

The agricultural regions of the CIS include the Ukraine, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. The large farms in these regions are particularly well-suited for high-production Case IH agricultural equipment.

New Latvian Government Approved

· The new Latvian coalition government, led by Prime Minister Guntars Krasts, was approved by the Latvian parliament on Thursday, reported Reuters. The new government received the support of 73 out of 100 parliamentarians. The new cabinet replaces the government of Prime Minister Andris Shkele, which resigned on July 28.

Krasts, who was economy minister in the former cabinet, represents the Fatherland and Freedom national-conservative party that recently merged with the Latvian National Independence Movement. He has promised to follow the strict monetary and budget policies pursued by SHKELE. KRASTS program also calls for speeding up reforms and making sure that Latvia begins early talks on EU entry.

Of the 18 ministers in the former government, only five were dismissed from their posts. Three ministers dismissed by SHkele for violating anti-corruption laws were not reinstated, although Railways Minister Vilis Kristopans, who was also accused of violations, was allowed to remain.

Latvian CB Protests Russian Bank Freezing

· Latvian central bank chairman Einar Repshe on Thursday criticized the St. Petersburg tax police for blocking the accounts of 14 Baltic banks, including eight Latvian banks, saying the action could negatively affect Russo-Latvian economic relations, reported Itar-Tass. "The Bank of Latvia is following the situation and reserves the right to take retaliatory measures," he is quoted as saying.

On Thursday, the Latvian Foreign Ministry was to address a note to the Russian Foreign Ministry, asking it to clarify the situation.

The chairman of the Latvian Association of Commercial Banks Theodoras Tveriyonas called it "absurd" to suspend payment transactions from accounts of Latvian banks because of non-payment taxes. In his opinion, the value added tax shall be paid by bank customers, rather than by the banks.

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Intercon's Daily

The total value-added tax not contributed to the Russian federal budget during the first six months of 1997 of 14 Baltic banks in St. Petersburg totals 200 billion rubles, said Viktor Kononov, head of the Tax Police Department in charge of St. Petersburg.

An inspection established that Baltic banks illegally transmitted funds, including the value-added tax, abroad, avoiding hard currency control formalities, he said. In addition, these banks opened accounts for Russian enterprises without notifying the Russian Central Bank and the State Tax Inspectorate.

South Caucasus & Central Asia

Georgia Resumes Rail Trips to Moscow

· After an almost three-year break, Georgia has resumed railway traffic between Tblisi and Moscow with the first train leaving on Thursday at midnight, reported Itar-Tass. The train, served by Georgian staff, will travel to Moscow and back to Tblisi once a week, under an agreement between the railway ministries of the two states.

ConAgro in Georgian Oil Development

· Canada's CanArgo Energy Inc. announced on Thursday that Ninotsminda Oil Co. has signed a mandate letter with the International Finance Corporation (IFC) in relation to a proposed financing of up to $25 million for Ninotsminda's oil field development project in Georgia, said a company press release. CanArgo has a 55.9 percent interest in the Ninotsminda Oil Co.

The IFC's financing is contingent upon the results of the technical, economic, commercial, and environmental appraisal by the IFC of the Ninotsminda field project and conclusion of the relevant agreements and approval of the respective Boards of Directors.

This project plans drilling some 20 production wells over a four-year period and upgrading processing and handling facilities to increase production from the Ninotsminda field to over 20,000 barrels per day,

as well as carrying out work within the Ninotsminda, Manavi, and West Rustavi license area.

CanArgo is a junior international oil and gas exploration and production company. Its primary asset is a 55.9 percent interest in Ninotsminda Oil Co., which owns 100 percent of the Ninotsminda production-sharing contract with Georgia. The Ninotsminda Oil Co. currently produces about 2,000 barrels per day.

Yeltsin, Niyazov Call for Caspian Talks

· Russian President Boris Yeltsin and his Turkmen counterpart Saparmurat Niyazov on Thursday called on Caspian littoral state to speed up negotiations over disputed oil fields in the Caspian Sea, reported Interfax. At a meeting in Moscow, the two presidents said that the five littoral states should also accelerate negotiations on the legal status of the Caspian. They agreed that their foreign ministries should quickly work on a draft treaty defining the Caspian's status, said Yeltsin's press secretary Sergei Yastrzhembsky.

Central Asia States to Cooperate

· The prime ministers of three Central Asian states—Kazakhstan, Kyrgyzstan, and Uzbekistan—met in Almaty on Thursday to discuss steps toward economic integration and signed 10 intergovernmental accords. Akezhan Kazhegeldin, Apas Dzhumagulov, and Utkur Sultanov reached an agreements on coordinating railroad tariffs and on regulating migration between the three countries, reported the Associated Press (AP).

However, the premiers failed to agree on regulating trucking and the joint use of power lines.

Also an intergovernmental commission was formed to draft proposals to create international consortiums in the areas of energy, water resources, food, communications, and the development and processing of mineral resources.

The ministers will meet again this fall in Tashkent.

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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