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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 23, 1997

for at least 15 years, which does not mean it must have been registered with Russian authorities for 15 years. To prove its eligibility, a group may display a court sentence for "anti-Soviet religious activity," said Orekhov.

During a meeting with Yeltsin today, US Vice President Al Gore reportedly expressed hopes that last minute changes can be made to the controversial bill. GORE explained Washington's objections to the religion bill in a meeting with Prime Minister Viktor CHERNOMYRDIN on Monday.

In addition, US President Bill Clinton told Russian Foreign Minister Yevgeny Primakov in New York Monday that he has concerns over the revised religion bill and sent a note to Yeltsin on the matter.

Egypt's Mubarak Meets Russian Leaders

· Following a meeting with Egyptian President Hosni Mubarak today, Russian President Boris YELTSIN said that "it will be very difficult to overcome" the crisis in the Middle East "because of Israel's unconstructive position," reported Reuters. He exhorted Washington to use its influence to "work more actively" to forward the peace process and proclaimed that Moscow also must make a greater effort in the Middle East.

YELTSIN said that Foreign Minister Yevgeny Primakov would visit Egypt shortly and that First Deputy Prime Minister Boris NEMTSOV will make a trip there early next year.

Russian Federation

Politics

Yeltsin Expected to Sign Religion Law

· Russian presidential spokesman Sergei Yastrzhembsky told reporters today that President Boris Yeltsin is satisfied with the text of the revised version of the religion bill and is likely to sign it into law. The new version of the bill, which places restrictions on the activities of many religious groups, was passed by the Russian State Duma last week and is expected to easily pass the Federation Council, when it considers the bill today.

Both versions of the bill are strongly supported by the Russian Orthodox Church.

YELTSIN vetoed the first version of the bill, passed in July, calling it unconstitutional. Human rights groups, the Vatican, and Washington voiced strong objections to the first version of the bill, with the US Senate threatening to cut aid to Russia, if YELTSIN signed it. The new version includes Catholicism on its list of the main religions in Russia, but is still very restrictive.

On Monday, the presidential administration's top lawyer Ruslan Orekhov said the new version of the law on religions fully complied with the Russian Constitution and the country's international obligations, reported Itar-Tass. In contrast to the previous version, which distinguished between "traditional" and "non-traditional" religious organizations, the new law divides confessions into organizations which have been rooted in Russia for at least 15 years, and groups which, unlike organizations, are not considered legal entities.

To be qualified as an organization, a religious association must document that it has existed in Russia

Today's News Highlights

Russia

Mubarak in Russia

Hard Currency Use Restricted

Dubinin in Talks with Chinese

Upcoming Events

Gazprom Production Forecasts

EU-Russia Telecom Conf.

Fiat-GAZ Joint Venture Planned

Chubais in Hong Kong

IMF GDP/Inflation Table

S&P's Rates Tatneft

Politics-Economics-Business

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Tuesday

September 23, 1997

Intercon's Daily

Mubarak also held talks today with Nemtsov who serves as Russia's Fuel and Energy minister.

"Russia would like to establish more intensive economic relations with Egypt and expand trade turnover," NEMTSOV is quoted by United Press International (UPI) as saying.

Nemtsov and Mubarak, who is accompanied by ministers of trade, economy, and industry, discussed a joint project to build Tupolev 204 passenger jets and contracts for power plants to be built in Egypt.

During MUBARAK's three-day visit, Moscow and Cairo are expected to sign agreements on avoiding double taxation, protecting and encouraging investments, expanding bilateral trade, and cooperation in marine transportation.

Economy

Ruble = 5,855/$1.00 (NY rate)

Ruble = 5,856.5/$1.00 (CB rate)

Ruble = 5,847|5,866/$1.00 (buy|sell rates)

Russia to Restrict Hard Currency Use

· The Russian Central Bank will ban the use of hard currency for cash and credit card payments within the country as of November 1 as part of the government's effort to strengthen the ruble, reported the Financial Times. Cash payments in hard currency were outlawed three years ago in an attempt to stem the dollarization of the economy, but credit card payments in hard currency were still permitted.

Central Bank first deputy chairman Aleksandr TURBANOV told reporters on Monday that the decision was prompted by the growing stability of the ruble against the dollar and the decline in hard currency payments in Russian stores, said FT.

Currently 18 percent of all capital transactions in Russia are conducted in foreign currencies, mainly US dollars, according to the Journal of Commerce.

The new rule exempts duty-free shops and will not prevent people from opening bank accounts in hard currency. However, the Central bank recently warned banks that it plans to tighten the rules regulating withdrawals of cash in hard currency from hard currency accounts.

TURBANOV also said that foreign air and railway companies will be allowed to charge and receive foreign currency on their accounts in Russia until January 1, after which they must switch to rubles.

Chubais Says Russia Economy Improving

· The Russian economy has begun to improve with the protracted slowdown in output finally arrested, Russian Finance Minister/First Deputy Prime Minister Anatoly Chubais said Tuesday, reported Kyodo news. "Next year we expect a resumption of economic growth," he said in an address to the annual meeting of the International Monetary Fund (IMF) and the World Bank in Hong Kong.

CHUBAIS forecast Russia's inflation rate is unlikely to exceed 15 percent this year and noted that the ruble's exchange rate has stayed within a predetermined band. A decline in interest rates is helping stabilize the financial sector and the yield on government bonds, which used to divert resources from new investment, is now just slightly above the level of inflation, he said.

CHUBAIS also told reporters in Hong Kong that Russia is thinking about floating the ruble, reported Dow Jones. "It's a little bit early to discuss, it's just a problem we are thinking about now. It will be announced a little bit later," he is quoted as saying. The

Upcoming Events

Russian Far East Business Forum

September 25, 1997

Grand Hyatt Hotel, Washington, DC

Sponsored by: US Department of Commerce, BISNIS and The Kennan Institute

for Advanced Russian Studies

Info: Joseph Dresden

Tel: 202-287-3400; Fax: 202-287-3772

e-mail: jdresen@sivm.si.edu*

How to Master the Art of Doing Business in Russia

September 29_30, 1997

Park Lane Hotel, New York City

Organized by: Insight Information Inc.

Info: Insight Information

Tel: 416-777-2020 or 1-888-777-1707

Fax: 416-777-1292

When you need to know it as it happens

Politics-Economics-Business

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	Tuesday		September 23, 1997
	Intercon's Daily
	minister would not comment on any specific government ideas for abolishing the exchange rate corridor, currently in use. Dubinin in Talks on Use of Yuan · Russian Central Bank chairman Sergei Dubinin held talks with the head of the National Bank of China today on prospects for Russian banks' to work with the Chinese yuan and the opening of a branch of the Russian Central Bank in the People's Republic of China, reported Itar-Tass. The two bankers met in Hong Kong within the framework of the IMF/World Bank annual meetings. The Russian side emphasized that such a development "is extremely important in the light of the expansion" of trade and economic cooperation between the two countries, a Russian delegation member told the press. The two sides agreed that Dubinin will visit Beijing to continue talks, after the meetings in Hong Kong are adjourned. Gazprom Forecasts Output at 1996 Level · Russian gas monopoly Gazprom today forecast natural gas production this year at 565.4 billion cubic meters (bcm), just slightly above 1996 output of 564.7 bcm, reported Reuters, citing company spokesman Sergei SMIRNOV. A forecast issued by Gazprom in December said that gas output would reach 580 bcm. Gazprom accounts for 95 percent of Russian gas production. SMIRNOV predicted Gazprom would produce 8.9 million tons of oil this year, up from 8.6 million in 1996. In addition, Interfax quoted Gazprom deputy chairman Valery REMIZOV as saying that capital expenditures by Gazprom this year will total 29.69 trillion rubles, down from 40.56 trillion in 1996. Business Russia-EU Telecom Conference Planned · European and Russian industrialists will meet in Moscow on October 6-7 to discuss the development of a Europe-wide Information Society, reported M2 Communications on Monday. The discussions are part of a conference on the barriers to trade and investment, organized by InterConnect Communications Ltd. (ICC). The con	ference aims to promote industrial cooperation between the European Union and Russia. The first day of the conference examines the investment opportunities and industrial cooperation between the two regions. Discussions will be led by Commissioner Dr. Martin Bangemann and Prime Minister Viktor ChernomyRdin. The second day explores the Information Society from a European perspective. The Information Society was chosen as a case study because of the importance of telecommunications in economic development. A joint declaration on the development of a Europe-wide Information Society will be signed by both sides at the end of the two-day conference. ICC is closely involved in implementing Information Society projects across Russia and was invited by the European Commission to define the current situation. Following the conference, ICC will work with the Russian Communications Ministry to identify pilot projects to be developed with the support of the European Commission. Representatives from over 60 European companies are expected to participate in the discussions. They include British Aerospace, Daimler Benz, British Telecom, and Alcatel. Russian participants include Rostelekom, Svyazinvest, and regional network operators. ICC is an independent telecom consultancy with offices in the UK, Europe, and Russia. Fiat in JV with Nizhny Novgorod Automaker · Italy's Fiat and Nizhny Novgorod automaker GAZ have agreed in principle to set up a joint venture to produce cars, reported Interfax, citing Nizhny Novgorod Governor Ivan SKYLAROV. The governor told a meeting of regional officials that the details of the project were agreed during talks in London last week between GAZ, Fiat, and the European Bank for Reconstruction and Development (EBRD). SKYLAROV said that the EBRD would invest $240 million in the $850 million project. The project plan calls for about 150,000 Fiat cars to be assembled annually at a GAZ car engine plant in Nizhny Novgorod. The project will provide jobs for about 4,000 workers, said SKYLAROV.


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Politics-Economics-Business				Page

Tuesday

September 23, 1997

Intercon's Daily

S&P's Rates Tatneft Oil Company

· Standard & Poor's on Monday assigned a single-'B'-plus corporate credit rating to A.O. Tatneft, an upstream oil company based in central Russia's Republic of Tatarstan, said S&P's CreditWire. The rating reflects the company's position as Russia's fourth-largest oil producer, a key industry sector for the Russia and the Republic of Tatarstan in terms of tax earnings and foreign currency inflow. While the tax rules largely are set by Tatarstan, where Tatneft has essentially all its oil reserves, western export quotas and pipeline tariffs are controlled by the Russian central government, creating an interdependence between the company and the authorities in Tatarstan and Moscow.

Tatneft's proven oil reserves are estimated at 6.3 billion barrels of oil, enough to maintain production at current levels for 33 years. Approximately 60 percent of the reserves are developed, but 30 percent of the wells are idle, reflecting neglected past maintenance and mature fields. Therefore, a key priority for Tatneft is to restore idle oil wells and to invest in improved recovery technology, in order to increase output.

Other means to improve operating margins include continued cost rationalization and increased sales of

oil products at the expense of crude sales. Tatneft has limited downstream integration but, through tolling arrangements with refineries, the company hopes to be able to take a significant share of the currently very attractive refining margins.

The quality of Tatneft's oil reserves is rather low, with 62 percent of the reserves having sulfur content above 1.9 percent. Currently, this is not a major disadvantage but it could become so should Russian state pipeline company Transneft, the, start to charge fees according to product quality.

Tatneft is one of the few Russian corporations with audited US GAAP accounts from 1994, and is listed on the stock exchanges in Frankfurt and London.

Financially, Tatneft currently is very strong. Net debt was negligible at year-end 1996 and net interest coverage for the year was 7.2 times. Operating margins are lower than those of western oil companies but, to a large extent, this is explained by the lower prices and higher non-income taxes. Going forward, it is likely that leverage will increase as Tatneft speeds up its much-needed capital investments. However, the upside of potentially higher margins could mitigate this issue.

Standard & Poor's sees a strong link between Tatneft and the government of Tatarstan (Tatneft's major shareholder) and Russia and it is anticipated that Tatneft's credit profile will remain stable.

It is further expected that although leverage is likely to increase, Tatneft will maintain a healthy safety margin in terms of cash flow coverages and foreign-currency balance, said CreditWire.

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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