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

Tuesday, September 2, 1997

Azeri oil to pass through Chechnya, as planned. The president said that he and Chechen leader Aslan MASKHADOV had agreed to work together to restore the pipeline and the Grozny refinery. Security Council secretary Ivan Rybkin also said today that he advocates transporting the oil through Chechnya, rather than trying to bypass it. He said talks will continue and a compromise will be sought.

Russia Creates a Coast Guard

· Russian President Boris Yeltsin signed a decree on Friday consolidating control over the patrol of Russia's coastlines under a new Coast Guard service, which will be part of the Federal Border Service (FBS), reported Itar-Tass. FBS director Andrei Nikolayev announced that the Coast Guard will ensure central control over the protection of biological resources of Russia's territorial waters, exclusive economic zone, and continental shelf. Some 18 different agencies were previously charged with this task, he said.

Currently, the FBS has 981 ships and cutters employed in Russia's exclusive economic zone. As a result of the decree, it will receive 25 vessels of the former State Fishing Committee. Also, the Ministry of Agriculture will hand over to the FBS its personnel and equipment from both Moscow and the regions. The Agriculture Ministry's fisheries department will retain functions related to the harvesting and production of sea resources.

Under the decree, the government will earmark five percent of the

Russian Federation

Politics

Yeltsin to Release Presidency in 2000

· Russian President Boris Yeltsin said on Monday that he will not run for president in 2000. Speaking at a ceremony to start the new school year at a Moscow school, the president said he would leave the leadership of Russia to younger men.

The Russian Constitution stipulates that the president can only serve two terms in office, but there was speculation that YELTSIN would try to run again based on the argument that when he was first elected president of Russia, it was not an independent state.

Still No Accord on Chechnya Oil Transit

· Russian and Chechen officials failed to reach an agreement on Monday on the terms of the transport of Azeri Caspian Sea oil through Russia, via Chechnya. The main sticking point in negotiations is transit fees—Russia has offered Chechnya $0.43 per ton, while Chechnya is demanding at least $2.20 per ton. The continued disagreement has revealed differences among the Russian leadership on the importance of Chechnya's role in Caspian oil transport.

Russian Deputy Fuel and Oil Minister Sergei KIRIYENKO on Monday pledged that Russia would fulfill its obligations to Azerbaijan to transport its oil, beginning on October 1, even if this meant bypassing Chechnya. He said his Ministry was examining contingency plans in case an agreement could not be worked out with Grozny. Prime Minister CHERNOMYRDIN has also said that an alternate route for the oil could be found, if Chechnya does not agree to Russia's terms.

However, President Boris YELTSIN told CHERNOMYRDIN during a meeting today that he wants the

Today's News Highlights

Russia

Russia Sells Some Gold

Chernomyrdin Upbeat on Econ.

US-Russia Rocket JV Forward

Toyota to Expand in Russia

South Caucasus & Central Asia

Karabakh Elects President

Total Buys into Azeri Oil Deal

Niyazov Has Heart Surgery

Turkmen Oil & Gas Tender

Technip Gets Turkmen Order

Politics-Economics-Business

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Tuesday

September 2, 1997

Intercon's Daily

This Week's Happenings

¨ German President Roman Herzog will visit Moscow August 31_September 4 to meet with Russian President Boris Yeltsin and other Russian leaders. The two sides will discuss bilateral relations and economic cooperation.

¨ Russia's Security Council deputy secretary Boris Berezovsky arrived in Uzbekistan on September 1 for a two-day working visit. He will meet with Uzbek President Islam Karimov and other government officials to discuss Central Asian security. Berezovsky is accompanied by the heads of several Russian banks including Most Bank and Alfa Bank.

¨ A summit between Ukraine and the European Union (EU) will be held in Kiev on September 5. Ukrainian President Leonid Kuchma, Ukrainian Prime Minister Valery Pustovoitenko, Luxembourg Prime Minister Jean Claude Junker (the current EU president), and European Commission chairman Jacques Santer will attend the summit, which will focus on the possibility of Ukrainian membership in the EU, and discuss a draft partnership and cooperation agreement between Ukraine and the EU.

¨ Eight central and eastern Europe states will hold a two-day meeting on European security, beginning on September 5 in Vilnius. Attending the meeting will be the presidents of Lithuania, Latvia, Estonia, Poland, Belarus, Ukraine, and Finland as well as Russian Premier Viktor Chernomyrdin.

¨ The main festivities marking the city of Moscow's 850th anniversary will take place September 5_7.

¨ Russian President Boris Yeltsin is due to meet Belarus leader Aleksandr Lukashenko in Moscow on September 6. However, YELTSIN said today that the issue of Russian public television ORT journalists detained in Belarus "must be decided" before he will meet Lukashenko.

Economy

Ruble = 5,830/$1.00 (NY rate)

Ruble = 5,832/$1.00 (CB rate)

Ruble = 5,822|5,841/$1.00 (buy|sell rates)

Russia Sells 31 Tons of Gold

· The Russian Finance Ministry announced today that it sold 31 tons of gold abroad in August in order to pay off wage arrears to miners, reported Interfax. Vladimir RYBKIN, head of the Ministry's precious metals department, said the sale was planned for in the federal budget.

He also said that the government had paid off a $104 million in debts to gold miners at the end of last month and that another $156 million would be transferred to the Gokhran state metals fund this week.

Interfax put Gohkran's gold reserves at about 60 tons at the beginning of August. Russia's gold output during January-July is estimated at about 45 tons, slightly less than production during the same period last year.

Chernomyrdin Upbeat on the Economy

· Russian Prime Minister Viktor Chernomyrdin told the 14th Congress of the Association of Asian Banks in Moscow on September 1 that Russia expects to receive $10-15 billion in foreign investment annually by the year 2000, reported Interfax.

The premier said that the main tasks of economic policy are to reduce inflation to 5-8 percent a year in 1998, stabilize the ruble, lower the cost of debt service, and increase the availability of credit.

Central Bank chairman Sergei Dubinin told the congress that 52 percent of Russia's banks are stable, reported Prime-Tass. Another 25 percent of banks are unsound, but they represent only five percent of the country's banking assets. The licenses of 190 Russian banks were revoked in 1997, while only four new licenses were distributed.

Business

US-Russia Rocket Venture Moves Forward

· Russian President Boris YELTSIN has signed a decree formally approving co-production in the US of the Russian-designed RD_180 rocket engine that

ministry's fisheries quotas for the maintenance and development of the FBS' Coast Guard. However, the new department will guard only Russia's external waters, not its rivers and lakes, which will remain under the control of the Agriculture Ministry.

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Tuesday

September 2, 1997

Intercon's Daily

will be used to power Lockheed Martin's advanced space launch vehicles, said a Lockheed Martin press release issued on Friday. Lockheed Martin has established an international teaming relationship with the RD AMROSS joint venture that was formed by Russia's NPO Energomash and US Pratt & Whitney, a unit of United Technologies Corp. The joint venture will co-produce the RD_180 under exclusive contract for Lockheed Martin.

The RD_180 engines will be used to boost Lockheed Martin's new Atlas IIAR launch vehicle and the company's candidate for the US Air Force's Evolved Expendable Launch Vehicle family of rockets.

Lockheed Martin announced recently that it is purchasing up to 101 new RD_180 rocket engine rocket engines from RD AMROSS. The total value of the agreement is expected to be about $1 billion.

Toyota Plans CIS Expansion

· Japanese automaker Toyota Motor Corp. is planning to sell up to two million of its cars annually in the Commonwealth of Independent States (CIS) after the year 2000, Prime-Tass today. Company director Ioshimi Inab said Toyota is currently considering several projects for producing cars in Russia.

However, Toyota's current priority in Russia is post-sales service. The company plans to open seven or eight new repair and maintenance service facilities in the CIS between the end of this year and March 1999. The company now has 17 service centers in the CIS, including 11 in Russia.

GUKASYAN's victory is unlikely to help move forward the Karabakh peace process. He told reporters that he rejects the latest peace proposal, stating that Karabakh will accept no less than total independence from Azerbaijan, and advocated a military buildup for the region.

France's Total Buys into Azeri Oil Deal

· French oil company Total SA said today that it has purchased a 20 percent stake in a production-sharing contract for the Absheron block in the Azeri section of the Caspian Sea, reported Dow Jones. The other partners in the contract are the Azeri state oil company SOCAR, with a 50 percent stake, and US Chevron Corp., with 30 percent. No financial details were available.

The Absheron block, previously called Tagiyev, covers about 400 square km and has depth of 250-650 meters. The exploration drilling program, scheduled for late 1999, will follow a 3D seismic campaign.

Kazakh President in the Persian Gulf

· During a visit to Kuwait over the weekend, Kazakh President Nursultan Nazarbayev signed an agreement on trade and economic cooperation and an agreement on encouragement and protection of investments with Kuwaiti officials, reported Xinhua. In addition, the two sides agreed to open a direct air route between their two capitals and on cooperation in the area of oil, gas, construction of roads, and agriculture.

Nazarbayev will also pay visits to Bahrain and Oman this week.

Japan's NEC Opens Office in Uzbekistan

· Japan's NEC Corp. has established a representative office in Tashkent to market its telecommunications systems in Uzbekistan and other Central Asian countries, reported Newsbytes today. The company also announced that is has signed a memorandum of understanding with the Uzbek Ministry of Telecommunications to open a Technical Center in Tashkent to train Uzbeki engineers and students in telecommunications technologies and equipment.

In February, NEC won a 10 billion yen ($82.88 million) contract from the Uzbek Ministry of Telecommunications to add 250,000 lines and fiber optic and

South Caucasus & Central Asia

Karabakh Elects Hard-line President

· Azerbaijan's separatist region of Nagorno-Karabakh on Monday elected Arkady GUKASYAN, the republic's "foreign minister," as its new president, reported Reuters. A hard-line separatist, GUKASYAN won some 90 percent of the votes to defeat two other contenders. His candidacy was endorsed by the leadership of Armenia, according to RFE/RL Newsline.

Karabakh's first president Robert Kocharyan was elected in November 1996. He resigned in March 1997, when he was appointed prime minister of Armenia.

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microwave transmission systems in the northern part of the country.

New US Ambassador to Tashkent Nominated

· US President Bill CLINTON on Friday announced his intent to nominate Joseph A. Presel, a Career Member of the Senior Foreign Service, Class of Minister-Counselor, to be Ambassador to the Republic of Uzbekistan, said the White House. Presel has served as the Coordinator for Regional Affairs in the New Independent States (NIS) since 1993 and became Special Negotiator for Nagorno-Karabakh in 1995, with the rank of Ambassador.

Presel joined the Foreign Service in 1963 and has specialized in Russian, multilateral diplomacy, and political military affairs. He has served in Turkey, France, Moscow, Belgrade (as Deputy Chief of Mission), and twice in the US Arms Control Delegation in Vienna, the second time as Deputy US Representative.

Turkmenistan's Niyazov Has Heart Surgery

· Turkmen President Saparmurat Niyazov underwent heart surgery at a Munich hospital on Monday and his condition is stable, reported Itar-Tass, citing the Turkmen Foreign Ministry. The operation on the 57-year-old leader, carried out by prominent German cardiologist Dr. Meisner, took five hours.

The news that the president needed heart surgery was made public by Turkmen state television on Sunday. The broadcast did not specify NIYAZOV's problem nor where in Germany the operation would take place.

Turkmen Oil & Gas Tender Opened

· The government of Turkmenistan on Monday officially opened an international tender for the right to develop about 25 percent of its oil and gas reserves on the Caspian Sea shelf. The Turkmen Oil and Gas Ministry said that the country claims an area of 70,000 square km in the Caspian. The tender area covers approximately 22,600 square km.

Turkmenistan's total reserves in the Caspian are estimated at three billion tons of oil and 4.8 trillion cubic meters of natural gas.

The area open to development includes 11 out of 30 blocks in the Caspian claimed by Turkmenistan, including the disputed Serdar (Kyapaz) deposit.

The tender is being conducted by a government advisory group, called the Competent Body for the Exploration of Hydrocarbon Resources.

Bids will be accepted until November 28, and the Competent Body will announce the winners on January 1, 1998. Turkmenistan will give presentations on the tender in Vienna from September 7-10 and in London from September 11-12. Presentations are scheduled for October in Houston and Ashgabat.

German Bank May Finance Turkmen Pipeline

· Germany's Dresdner Bank AG has announced plans to help finance the construction of a $1.6 billion gas pipeline from Turkmenistan to Turkey and Europe, reported Reuters on Monday, citing a Turkmen official. No further details on the financing deal were available, but detailed talks on the deal with Dresdner are expected in October.

The planned 1,500 km pipeline would have a capacity of 30 billion cubic meters of gas a year.

Technip Receives Turkmen Refinery Order

· French engineering and construction company Technip SA said on Monday that it has received a $200 million refinery order in Turkmenistan, reported Dow Jones. Technip said the Turkmen Oil and Gas Ministry will pay $200 million to design, build, and provide equipment for millisecond catalytic cracker in Turkmenbashi refinery near the Caspian Sea.

The plant has a capacity of 1.8 million metric tons a year and is scheduled to come in 2000. Financing has been secured with export credits through lead bank Bayerische Landesbank.

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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