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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, September 29, 1997

reportedly discussed specific projects of Russo-Italian economic cooperation, including automobile manufacturing and deliveries of Russian oil and gas to Italy. The two also talked about European security and other international issues. Yeltsin is expected to pay a state visit to Italy in February 1998.

PRODI also met today with Prime Minister Viktor CHERNOMYRDIN, Fuel and Energy Minister Boris NEMTSOV, and other officials.

Turkey May Punish Russia for Cyprus Deal

· The Turkish military, angry over Russia's plan to sell missiles to Cyprus, is thinking about excluding Russia from competition for Turkey's defense contracts, reported Xinhua, citing the Turkish Daily News. Turkey plans to spend at least $150 billion in the next 25 years on modernization programs, which is of considerable interest to Russian arms exporters, the paper cited unnamed senior military sources as saying.

Turkey has repeatedly criticized the Russian-Cypriot missile deal, saying the weapons would constitute a serious threat to Turkey's national security.

Vladivostok Mayor Returns to Trouble

· Vladivostok mayor Viktor CHEREPKOV returned home from a business trip to North Korea on Sunday to find that the regional legislature had suspended him, reported Dow Jones. Primorsky Krai governor Yevgeny NAZDRATENKO supported the

Russian Federation


Oneximbank Tied in to Kokh Scandal

· The Financial Times on Friday reported that it has discovered ties between a Swiss firm that is supposedly publishing a book by former Russian privatization minister Alfred KOKH and Russian commercial bank Oneximbank. KOKH was forced to resign last summer following two controversial share auctions in Russia, both of which were won by Oneximbank, and both of which drew protest from rival Russian financial groups who accused the government of favoring Oneximbank.

According to the FT, KOKH was paid a $100,000 advance last year on the publication of a book by the Geneva-based bookkeeping firm Servina. The newspaper noted that there was considerable confusion at Servina, and from KOKH himself, over who had commissioned the book, when it will be published, and in what language.

The paper also established that the former director of Servina and the man who apparently set up the book deal, Siegfried PASQUAL, is now an employee of Banque Unexim (Suisse), the wholly-owned Swiss subsidiary of Oneximbank. Moreover, PASQUAL still appears to have a connection to Servina.

KOKH reported the receipt of the $100,000 on his income declaration before he left the Russian government, but the Russian Prosecutor General's office is now looking into whether or not it was a legitimate book advance.

Italian Premier Visits Russia

· Italian Prime Minister Romano Prodi arrived in Moscow today and was received in the Kremlin by Russian President Boris Yeltsin. The two leaders

Today's News Highlights


The Week's Happenings

Russians Still Buy Dollars

Russia Co. in Iran Gas Deal

Two Oil Company Tenders Set

Reynolds' Russian JV in Deal

BP Expands Stations in Moscow

European Republics

Belarus Pres. Visits India

Ukraine Puts Tax on Cellular

New Ukraine Opposition Party




September 29, 1997

Intercon's Daily

The Week's Happenings

¨ Russian Foreign Minister Yevgeny Primakov will visit Canada on September 29-30 to meet with his Canadian counterpart Lloyd Axworthy and other officials.

¨ Belgian Foreign Minister Erik Deryjcke arrives in Baku on September 29 for a two-day official visit. Deryjcke leads a delegation of representatives from 20 leading Belgian companies.

¨ Lithuanian President Algirdas Brazauskas will visit Switzerland on September 29 to meet with deputy UN Secretary General and general director of the UN Geneva office Vladimir Petrovsky and other heads of international organizations.

¨ Lithuanian parliamentary chairman Vytautas Landsbergis on September 29 travels to Iceland for a four-day official visit.

¨ Slovakia's Defense Minister Jan Sitek arrives in Kiev on September 29 for talks with Ukrainian President Leonid Kuchma, Defense Minister Aleksandr Kuzmuk and Ukrainian lawmakers.

¨ Russian Deputy Prime Minister Valery Serov arrives in Minsk on September 29. He is scheduled to meet with Belarus President Aleksandr Lukashenko and Premier Sergei Ling and is expected to raise the issue of Belarus' incarceration of Russian Public Television ORT reporter Pavel Sheremet. On October 1, Serov attend a regular meeting of the Interstate Economic Committee of the CIS Economic Union.

¨ On October 1-2, Russian President Boris YELTSIN is scheduled to make a working trip to Nizhny Novgorod.

¨ Russian Defense Minister Igor Sergeyev will attend an informal meeting of NATO military chiefs in Maastricht on October 1-2.

¨ Belarus President Aleksandr Lukashenko will visit Russia's Yaroslavl Oblast on October 2-3.

¨ Russian Prime Minister Viktor Chernomyrdin will visit the Netherlands on October 1-3. He will travel to Kazakhstan on October 4 and Kyrgyzstan on October 6.

suspension as did Russian President Boris YELTSIN. Both men are long-time rivals of CHEREPKOV.

YELTSIN criticized both CHEREPKOV and NAZDRATENKO for failing to pay back wages to regional workers and creating a steadily worsening energy crisis.

NAZDRATENKO blamed CHEREPKOV for the strikes and other problems of the area. "The situation in the city is on the verge of catastrophe," NAZDRATENKO is quoted by Interfax as saying. He said the move to suspend the mayor "should have been done a long time ago."

In fact, the mayor and governor have been locked in a power struggle for some time and it is likely that NAZDRATENKO played some role in bringing on the suspension. The feud has greatly exacerbated, if not specifically caused, the problem of the breakdown of public services in the area.

While in North Korea, Cherepkov signed an agreement with North Korean trading company Rungrado on the building and improvement of his city. Under the accord, six bridges, overpasses, and underpasses, garages, and bus stops are to be built in Vladivostok, unfinished apartment buildings are to be completed, and town improvement work is to be done through joint efforts.


Ruble = 5,866/$1.00 (NY rate)

Ruble = 5,860/$1.00 (CB rate)

Ruble = 5,856|5,865/$1.00 (buy|sell rates)

Russians Still Buying Up Dollars

· Russians spent 190 trillion rubles to buy almost $30 billion in January-July 1997, according to Leonid Abalkin, director of the Russian Academy of Science's economics institute. Speaking at the "Russia—the 21st Century" conference on Friday, he said that this proves Russian society's uncertainty about the future and its preference to invest in foreign currencies rather than in the Russian economy, reported Itar-Tass.

Abalkin, a former Soviet deputy prime minister, called attention to the insistent need for the Russian people to understand that social and economic



When you need to know it as it happens


September 29, 1997

Intercon's Daily

changes are irreversible. He believes that this understanding is impossible because Russia lacks a clear strategy of national development. The elaboration of such a strategy has just begun, he said.

"It is very important for Russia to blend with a new turn in civilization development" on the juncture of two millennia, said Abalkin. This choice will determine all development in Russian society during the first half of the next century, he added.

Eastern, Tyumen Oil Tenders Set

· Russian State Property Committee head Maksim Boiko announced today that the government has approved a procedure for a commercial auction with investment terms for the sale of a 34 percent state stake shares of the Eastern Oil Company, reported Prime-Tass today.

The starting price for the block of shares will be 4,000 rubles for each of the 150.44 million shares and the buyer must invest $90 million within nine months and pay off company debts of 530 billion rubles.

Bids will be accepted until November 19 and the winner will be announced on November 24. It is not clear whether foreigners will be allowed to participate in the auction.

On Friday, the Russian Federal Property Fund announced that bidding will soon open for a 48.68 percent stake in the Tyumen Oil Company, said Prime Tass. Foreigners are not eligible to take part in the bidding.

The Tyumen Oil Company's authorized capital is 7.9 billion rubles. The stake on tender comprises 769.9 million shares with the nominal value of five rubles. The starting price of one share is set at 6,500 rubles. Applications for bids will be received from October 1 to November 20 at over 100 offices in 49 regions of Russia. The tender results will be announced not later than December 20.


Russia in Iranian Gas Deal

· Iran has signed a $2 billion contract with a consortium of French, Russian, and Malaysian oil companies to expand gas fields in southern Iran, reported United Press International (UPI), citing the

Islamic Republic News Agency (IRNA). The National Iranian Oil Company (NIOC) signed the contract Sunday with a consortium led by France's Total.

The project is aimed at expanding phases two and three of the Pars Jonubi gas fields where 57 million cubic meters of gas will be extracted per day, said IRNA. The gas would be brought ashore through pipelines linked to Iran's national gas grid. The Pars Jonubi reserves are estimated at around 300 trillion cubic feet.

Total's other partners in the consortium are Russia's Gazprom and the Malaysian state oil firm Petronas.

New Deal for US Reynolds' Russian JV

· AluminProduct ImpEx Ltd., a joint venture company formed by US Reynolds Metals Co. and the Sayansk aluminum factory, have signed an agreement to supply primary aluminum to the Samara Metallurgical Company (SAMECO) for conversion into beverage can stock, Dow Jones reported on Friday. Under the agreement, the joint venture company will supply primary aluminum to SAMECO's rolling plant in Russia, where it will be manufactured initially into aluminum can end, tab, and body stock for customers in Asia and the Middle East.

AluminProduct also plans to ship can stock to customers in the CIS as the aluminum beverage can industry develops there, said a Reynolds statement.

"Russia's first aluminum beverage can plant should become a reality next year, and we look forward to becoming a key supplier," Reynolds' vice chairman and CEO Randolph REYNOLDS is cited as saying.

BP Plans Russian Gas Station Network

· British Petroleum plans to open up to 60 gas filling stations in the Moscow region by the end of 2000 in a major expansion of its oil product retailing business in Russia, reported Reuters today, citing company officials. BP Oil Europe director Peter BACKHOUSE, in Moscow for the official opening of BP's second filling station in Moscow, said the overall cost of the plan would be around $150 million.

BP's head of Russian retailing, Harry GRIFFITH, said the first Moscow filling station, opened a year ago, had proved a success and encouraged the company to embark on a major expansion program.

When you need to know it as it happens




September 29, 1997

Intercon's Daily

"the volumes were good, the numbers were good, and we met our expectations," GRIFFITH is quoted by Reuters as saying. "We now have a program to finish another seven to eight stations by the end of this year."

BP's Russian stations are being set up with US Mobil in line with BP's European downstream venture with the US oil company.

High-octane products for new stations are imported from Finland, said GRIFFITH, as Russian refineries are still struggling to meet international standards. He said that BP will consider investing in Russian refineries to supply filling stations products in the future, but that it is likely to be a long-term strategy. However, BP does currently have a joint venture with the Kirishi refinery near St. Petersburg to produce jet fuel to international standards.

Russia's 24 biggest refineries operated at only 55 percent of maximum annual capacity of about 293 million tons in 1996, according to industry estimates. However, a high percentage of this throughput was heavy products like fuel oil, gasoline, or diesel, which did not meet European environmental standards.

Industry analysts expect Russian refining to undergo a shake-up in the next couple of years with unprofitable plants being forced to shut down to reduce massive overcapacity, said Reuters.

Ukraine Cellular Cos. Protest Tax

· Ukrainian mobile telephone operators have criticized a government plan to impose a tax on cellular network usage, saying that the new fee would raise call prices by more than half and undermine the industry, reported Xinhua. On September 17, the Ukrainian parliament approved draft legislation charging mobile operators $0.19 for each minute of network traffic. The rates for domestic calls now range from $0.05 to $0.25 per minute.

Ukrainian Mobile Communications (UMC) said that about 40 percent of its potential clients would be lost, if the tax is imposed. UMC offers mobile telephone services based on the NMT-450 and GSM-900 standards.

"For the first time our government is trying to impose an excise tax on a service rather than a commodity," Valery Posnikov, spokesman for Golden Telecom, which operates a GSM-1800 cellular telephone network in Ukraine, is quoted as saying.

Both firms warned that the tax would cost rather than earn money for the Ukrainian government because it would cause the market to shrink.

Earlier this year, the US Motorola canceled a plan to invest $500 million in its own cellular phone network in Ukraine for fear of the government's constant changes of tax and other rules.

New Ukrainian Opposition Party Launched

· The new Ukrainian political movement Hromada (Community) held a congress on Sunday and elected former prime minister Pavlo Lazarenko as its chairman, reported Itar-Tass. Hromada, which claims a membership of 17,000, stated that it is in opposition to President Leonid Kuchma and the executive branch as a whole.

One of Hromada's leaders, Yuliya Timoshenko, who is president of the Unified Energy Systems electricity company, called on the movement to campaign for early presidential elections.

European Republics

Belarus President Visits India

· Belarus President Aleksandr Lukashenko held talks with Indian officials over the weekend, signing five bilateral cooperation agreements covering telecommunications, air services, economic and technological sectors, and defense on Saturday. Lukashenko said that Belarus wanted to improve defense ties with India and offered New Delhi that his country will repair and maintain Soviet-made weapons in the Indian arsenal.

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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When you need to know it as it happens