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, September 10, 1997

Russian Federation

Politics

Rokhlin Leaves Our Home is Russia

· Russian State Duma defense committee chairman Lev Rokhlin has quit the pro-government Our Home is Russia faction over disagreements with the party's policies. The problems between Our Home and ROKHLIN began in June, when he circulated a statement criticizing President Boris YELTSIN for presiding over the deterioration of the Russian armed forces and calling on soldiers to stand up for their rights. ROKHLIN has strongly objected to the current government military reform program and created a new movement to oppose the proposed changes.

In conjunction with former Defense Minister Igor RODIONOV, ROKHLIN formed the AllRussian Movement to Support the Army, Defense Industry, and Military Research, which he has been promoting across Russia.

This is the second major defection from Our Home, the second largest faction in the Duma, in the last few weeks. Sergei BELYAYEV, the former leader of the faction, quit recently citing disillusionment over the direction the party was taking. The loss of these two major figures is likely to weaken Our Home, know as the party of power.

Prosecutor Probes Phone Tap on Nemtsov

· The Russian Prosecutor General's Office has instituted criminal proceedings in connection with the illegal tapping of First Deputy Prime Minister Boris Nemtsov's telephone, reported RIA Novosti on Tuesday. The investigation has been entrusted to an investigator of cases of special importance.

Nemtsov filed a complaint with the prosecutor's official after the weekly Novaya Gazeta on August 4

published a transcript of a tape recording of telephone conversations between Nemtsov and Sergei Lisovsky. A preliminary check established that unknown persons had used bugging devices to listen in on the conversations, violating Article 138 of the Russian Criminal Code.

Chechnya Delays Public Executions

· The public execution of two persons in Chechnya, scheduled for today, has been canceled, a source in the Chechen Sharia Court told Itar-Tass. Apparently, the Chechen president must order a public execution and he has not approved this one yet.

Economy

Ruble = 5,840.5/$1.00 (NY rate)

Ruble = 5,841.5/$1.00 (CB rate)

Ruble = 5,838|5,845/$1.00 (buy|sell rates)

New Oneximbank-backed Paper Launched

· The battle being waged in the Russian media between the country's major financial groups heated up this week with the establishment of a new paper, backed by Vladimir POTANIN's Oneximbank. A new Russian daily newspaper, the Russian Telegraph, hit news stands on Tuesday, reported Reuters. The paper's chief editor, Leonid ZLOTIN, said his paper would aim to provide solid, factual news and would have a strong business bias, while providing coverage of politics and culture.

"We are a bourgeois, conservative paper," he told Reuters.

Today's News Highlights

Russia

Philippines Pres. to Russia

New Magazine on Russia

Gold License to Be Revoked?

United Complains About Aeroflot

European Republics

Ukraine Inflation at Zero

World Bank Loan for Moldova

South Caucasus & Central Asia

US Co. Invests in Georgia

Kazakh Bank Plans Eurobond

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Wednesday

September 10, 1997

Intercon's Daily

Following its success at two major privatization auctions last month, Oneximbank came under attack from media outlets owned by rival financial groups run by Boris BEREZOVSKY and Vladimir GUSINSKY. The barrage of criticism of Oneximbank and First Deputy Prime Minister Boris NEMTSOV by the disgruntled losers of the auctions showed a growing tendency among financial groups to actively exercise control over media outlets. It also underscored the importance of media ownership as a means of influencing public opinion and government policy. It appears that Oneximbank is now attempting to create a more favorable balance for future battles.

Russian Telegraph, currently only available in Moscow, will soon be distributed in other major cities, including St. Petersburg, Nizhny Novgorod, Yekaterinburg, and Khabarovsk, according to ZLOTIN. An overseas edition is also being planned, he said.

New Japanese Magazine on Russia

· The first issue of a new quarterly magazine on Russia, called Eurasia View, was published in Tokyo this week, reported Itar-Tass. The purpose of the magazine is to inform Japanese readers about life and current events in the former Soviet republics. The magazine is sponsored by the Japanese pharmaceuticals and medical equipment firm Iskra and also involves Itar-Tass.

Philippines President to Visit MiG Factory

· Philippine President Fidel Ramos will arrive in Moscow on Thursday for a three-day state visit, during which he is expected to meet with Russian President Boris YELTSIN, Prime Minister Viktor CHERNOMYRDIN, and other officials.

According to today's Nezavisimaya Gazeta, RAMOS has requested a tour of a plant that produces MiG jet fighters, an indication that Russia may soon gain a foothold in a new arms market.

Big Gold License Could Be Up for Grabs

· Irkutsk Oblast Governor Boris Govorin has joined the region's legislature in calls to revoke the Lenzoloto mining company's license to develop the Sukhoi Log gold deposit, believed to be Russia's largest undeveloped gold reserve. Vladimir Bulygin, head of the regional legislature's department for natural resources, told Interfax that the governor

agreed that the struggling Lenzoloto was "frightening investors [in Sukhoi Log] away." He said the huge gold deposit was "burdening" the company's other structures with the need for "huge material input."

Lenzoloto's management has been discussing the voluntary surrender of the license with a view to offering it at an international tender, said Interfax. An special shareholders' meeting may make a decision on the issue.

If the company does not decide to relinquish the license, the regional government and the Russian Ministry of Natural Resources may revoke the license on the grounds that Lenzoloto has not fulfilled its conditions.

According to Bulygin, the Russian State Property Committee currently holds a 33.1 percent stake in Lenzoloto, Australia's Star Technology owns 4.8 percent, the Irkutsk regional administration and the Atomredmetzoloto state concern each hold 4.1 percent, and Lenzoloto employees have 27.6 percent.

In 1992, Star purchased a 31 percent share in a Lenzoloto joint venture with the government to develop Sukhoi Log, but the Russian prosecutor's office won a legal challenge to the sale. The Australian company has invested $55 million in the venture.

Intercon reported in September 1996 that the Russian government decided to declassify information about reserves at the Sukhoi Log gold deposit. The government wanted to help attract foreign investment to develop the goldfield, located in western Siberia, 200 miles northeast of Lake Baikal. As much as $3 billion is expected to be needed for the development of these mines. According to an unofficial assessment of reserves, Sukhoi Log holds about 1,000 tons of gold.

Business

United Files Complaint Against Aeroflot

· United Airlines has filed a complaint with the US Department of Transportation (DOT), asking the government to prohibit Russian Aeroflot International Airlines from operating flights to Washington, Chicago, and San Francisco, reported today's Wall Street Journal. United cited two instances of being banned from servicing Russia.

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In March 1995, the Russian government forced United to discontinue its cooperative flights with Germany's Lufthansa between the US and St. Petersburg and Moscow, via Frankfurt. United said that the prohibition contravenes the 1993 US-Russian Air Transport Agreement.

More recently, United said that the Russian government turned down its application to use a new air route over the Russian Far East, another decision that contravenes the bilateral air treaty.

Under the terms of the International Fair Competitive Practices Act, the DOT must take a decision on United's complaint within 60 days. The US and Russia are expected to hold aviation talks from November 12-14 in Moscow.

Aeroflot Begins Flights to Rostov

· Russian Aeroflot International Airlines has launched regular daily flights from Moscow's Sheremetyevo-1 airport to the southern Russian city of Rostov-on-Don, reported Itar-Tass on Tuesday. Aeroflot, which operates flights to 93 countries, has been also actively developing domestic air links in recent months with Rostov-on-Don becoming the 12th Russian city that it services.

Aeroflot also has connections to St. Petersburg, Khabarovsk, Novosibirsk, Yakutsk, Neryungri, Bryansk, Arkhangelsk, Murmansk, Vladivostok, Kaliningrad, and Petropavlovsk-Kamchatsky.

Transaero-AA Offer New US Service

· Russian private carrier Transaero Airlines, which operates twice daily non-stop service between Los Angeles and Moscow, is now offering passengers the opportunity to depart from seven cities in the West and fly to Moscow for one low price, said a company press release. From San Diego, Monterey, San Luis Obispo, Fresno, Santa Barbara, Las Vegas, and Honolulu, travelers can fly via American Airlines to Los Angeles, for no additional charge, and then board their Transaero Airlines flight to Moscow and beyond.

Transaero non-stop flights operate on Sundays and Wednesdays between Los Angeles International Airport and Moscow. Transaero also flies to Chicago and Orlando from Moscow.

European Republics

Nuclear Safety Conference in Ukraine

· A major international conference on nuclear safety and security opened this week in Ukraine's Black Sea port of Odessa, reported Itar-Tass. Representatives of several large Western firms, five Ukrainian nuclear power plants, Russia's Energoatom company, and government officials were expected to attend. Nuclear power plants produce some 48 percent of electric power for Ukraine.

One of the main challenges facing Ukraine's nuclear industry is a shortage of funds. The industry owes its creditors, including the budget, millions of dollars, but its accounts receivable due from the national electric energy distribution center alone have almost reached a billion dollars. The shortage of funds precludes timely measures to maintain safety and replace old equipment.

The government is negotiating prospects for borrowing money to complete the construction of two units at the Rovno and Khmelnitskaya nuclear power plants. With the new units, Ukraine will produce 250 billion kilowatt/hours of electric energy, with domestic consumption of 181 billion kw/h.

Ukraine Prices Remain Steady in August

· The Ukrainian Statistics Committee has announced that the country registered zero inflation during the month of August. The Committee has forecast annual inflation rate at 5.3 percent this year. The monthly inflation rate was 0.8 percent in April and May and 0.1 percent in June and July.

World Bank Loan for Moldova

· The World Bank on Tuesday approved a $45 million equivalent of a Structural Adjustment Credit and a $55 million Structural Adjustment Loan to Moldova to support the government's economic reform program, said a Bank press release. The loan and credit will support government reforms necessary to create conditions for a resumption of growth and an improvement in living standards in Moldova.

The following reforms are needed to achieve these goals: improving financial discipline; demonopolizing and privatizing the energy sector; accelerating land reform and land privatization; reforming the pension

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Wednesday

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Intercon's Daily

system; and completing enterprise privatization, especially for small-scale enterprises.

The funds will provide the Moldovan government with the short-term budgetary support essential for maintaining the level of basic public services at a time of fiscal transition, said the release. It will provide necessary foreign exchange to purchase imports critical for Moldova's economic activity. The availability of low cost, non-inflationary budgetary financing will help consolidate Moldova's economic stabilization and maintain its short-term creditworthiness.

South Caucasus & Central Asia

US Co. Buys Georgian Wine Plant

· US Agribusiness Sparkling Wines LLC today won a tender for a controlling stake in Georgia's main sparkling wine plant, reported Reuters. Agribusiness has agreed to pay $2 million for a 75.9 percent stake in the Bagrationi 1882 plant, located in Tblisi. It plans to invest $10 million in the plant over the next three years to increase output and revive the popularity of the plant's products.

The starting price for the stake was $1.7 million. The tender was open to foreigners without restrictions.

Agribusiness expects the plant to produce 5-10 million bottles of sparkling wine per year initially, rising to 15 million by 2000. The Bagrationi 1882 plant, the largest of its kind in the Caucasus region, has an annual capacity of 23 million bottles, but production has declined in recent years because of lack of investment.

Agribusiness Sparkling Wines is a unit of Agribusiness Management Company LLC, a wholly owned subsidiary of financial services company America First Companies of Omaha, Nebraska.

Kazakh Savings Bank Plans Eurobond

· The People's Bank of Kazakhstan, the country's state-owned savings bank, is planning to place $100

million worth of Eurobonds in mid-October, making it the first Kazakh bank to sell Eurobonds, reported Interfax. The People's Bank is the country's largest bank. At the end of 1996, it had total charter capital of 761.8 million tenge (about $10.09 million).

The bank intends to first secure a credit rating from Moody's Investor Service, a People's Bank official told Interfax. The bank expected its rating to be consistent with Kazakhstan's country rating of BB-, he said.

New York's Lehman Brothers has been appointed the lead manager of the sale, while Bracewell & Patterson, LLP, and White & Case, LLP, will act as underwriters.

Another major Kazakh bank, Kazkommertsbank, also plans to place $100 million in Eurobonds before the end of the year.

Unocal Names New Man for Central Asia

· California-based Unocal Corp. on Tuesday announced the appointment of John J. Maresca, former US ambassador to the Organization for Security and Cooperation in Europe (OSCE), as vice president for International Relations, said a Unocal press release. Maresca will be responsible for advising Unocal's management on international relations, with initial emphasis on Central Asia.

Unocal is a member of an international consortium developing three major oil deposits in the Azeri section of the Caspian Sea. It is one of four foreign oil companies planning set up a joint venture to build an oil pipeline from Baku to Turkey's Mediterranean port of Ceyhan.

Unocal is also involved in the development of huge gas fields in Turkmenistan and, along with Saudi Arabia's Delta Nimir, is planning to build a pipeline to transport Turkmen gas via Afghanistan to Pakistan and India. This effort which has been bogged down by the civil war in Afghanistan.

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.

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 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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