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

Friday, September 5, 1997

US officials have said that they have no evidence to back up LEBED's claims.

Duma Chairman Wary of Media

· Russian State Duma chairman Gennady Seleznyev is concerned that the Russian press is being controlled by top government and presidential officials, according to the weekly Interfax-AiF. "The principle of freedom of speech has almost been buried in the press, above all in the electronic media," said Seleznyev. "Instead of being controlled by legislators, information is being controlled by the president and his entourage, first of all Deputy Prime Minister Anatoly Chubais, who is in charge of the media," he said.

Kokh Gets a New Job

· Alfred KOKH, Russia's former Deputy Prime Minister and former State Property Committee head, was named chairman of the board of the Montes Auri management company on September 1 and will oversee the company's major investment projects, reported Interfax. KOKH resigned in August following the controversial share auctions of Svyazinvest and Norilsk Nikel.

A Montes Auri official said that, starting in November, the company will take part in tenders and auctions for the sale of shares in major Russian enterprises, and KOKH will supervise the largest deals.

N. Caucasus Treaty SIgned

· The contentious Russian Republics of North Ossetia

Russian Federation

Politics

Lebed Makes Claims of Loose Nukes

· Russia's former Security Council chairman and presidential hopeful Aleksandr LEBED told CBS's "60 Minutes," in a segment to be aired on Sunday, that the Russian military has lost track of over 100 suitcase-sized nuclear bombs. Lebed said that the portable bombs, designed for sabotage behind enemy lines, can kill up to 100,000 people and destroy part of a city.

He was certain that the Russian military couldn't account for the suitcase bombs, but neither could he. "I don't know their location. I don't know whether they have been destroyed or whether they are stored or whether they've been sold or stolen," Reuters quoted him as saying.

In May, LEBED told a US congressional delegation led by Rep. Curt WELDON (R-Pa.) that he had discovered that the Russian military couldn't account for 48 of 132 suitcase bombs, according to the Associated Press (AP). In the interview with CBS, he increased the numbers to 100 missing bombs out of a total of 250.

Defense Ministry spokesman Vladimir Uvatenko said there are no nuclear bombs in Russia that are out of the control of the Russian armed forces. He said that Lebed's statement "can cause nothing but a smile" because Lebed never dealt with nuclear security issues and had no knowledge of the weapons circumstances, according to Xinhua.

Speaking to Itar-Tass from Vilnius today, Russian Prime Minister Viktor Chernomyrdin described LEBED's accusations as "absolute insanity," adding that: "Such silly statements need no comment."

Today's News Highlights

Russia

Rosneft Share Auction OK'd

Sweden Supports Freon Cuts

European Republics

Soros Pulls Out of Belarus

Ukraine Announces Privatization

Ukraine Power Co. to Sell Off

South Caucasus & Central Asia

EIU Report on Georgia

World Bank Loan for Georgia

New US Ambassador to Azer.

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Ruble = 5,837/$1.00 (NY rate)

Ruble = 5,838/$1.00 (CB rate)

Ruble = 5,834|5,842/$1.00 (buy|sell rates)

Sweden to Support Russian Freon Reduction

· The Swedish government has decided to appropriate $1 million through the World Bank to support a project aimed at reducing production of freon (a chloroflourocarbon) at seven Russian factories, reported Itar-Tass. A Swedish Foreign Ministry press release says that the factories now produce 60 percent of the world's freon output. This circumstance creates great possibilities for illegal freon trafficking. Several cases of smuggling freon from Russia to European Union countries and the US have already been exposed.

The release notes that under the Montreal protocol, Russia pledged to cease all production and consumption of freon by January 1, 1996. However, the Russian government has said that it cannot meet the obligation at this time. The discontinuation of Russian freon production will cost $170 million.

Apr May Jun Jul Aug Sep

and Ingushetia signed a peace accord in Moscow on Thursday aimed at ending a territorial dispute, reported RFE/RL. The accord was signed by North Ossetian President Akhsarbek GALAZOV and Ingush President Ruslan AUSHEV.

The roots of the conflict between the two North Caucasus republics dates from the STALIN era and concerns a piece of land called the Prigorodny region. Fighting flared up in the region in 1992 and again in recent weeks.

No details on the accord were disclosed. GALAZOV said that by itself the treaty means little because much work is needed to implement every article. It was Russian President Boris YELTSIN who insisted that the two sides sign the accord and work together to solve the dispute, rather than depending on the central government for assistance.

Economy

Rosneft to Be Sold in Two Stages

· Russian Fuel and Energy Minister Boris NEMTSOV said today that 96 percent of state oil holding company Rosneft will be sold off in two stages, reported Reuters. He also said that the ownership of oil producer Purneftegaz, which is claimed by both Rosneft and Siberian oil group Sidanko, will be decided in time for the sale of the first block of shares. The share auctions will take place before December 31, 1998.

European Republics

Regional Conference Opens in Vilnius

· A two-day international conference on good-neighborly relations in the post-Communist era opened in Vilnius today. It was attended by the presidents of 11 Central and East European countries—Lithuania, Latvia, Estonia, Belarus, Bulgaria, Hungary, Moldova, Ukraine, Romania, Poland, and Finland as well as by Russian Prime Minister Viktor Chernomyrdin.

The Presidents of Lithuania and Poland, Algirdas Brazauskas and Alexander Kwasniewski, are the organizers and co-chairmen of the forum.

Opening the conference, BRAZAUSKAS sent a message to Belarus that it must uphold democratic principles, human rights, and the rights of the press and the political opposition.

Belarus Releases One ORT Journalist

· Belarus President Aleksandr LUKASHENKO said today that one of two Russian Public Television (ORT) journalists being detained for illegally crossing the Belarus-Lithuanian border has been released, reported Russian independent television NTV. Cameraman Dmitri ZAVADSKY was arrested in early July along with ORT bureau chief in Belarus Pavel SHEREMET, and their driver, who is now free.

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The arrests, and later the detention of another ORT crew, have upset relations between Russia and Belarus, jeopardizing their planned integration. Moscow has demanded the release of the ORT men, but Minsk has insisted that SHEREMET is part of a plot by the Russian news media and Western intelligence to discredit Belarus and the LUKASHENKO administration.

Soros Pulls Out of Belarus

· The US-based Soros Foundation shut down its office in Minsk on Wednesday because of pressure from Belarus over its activities and the imposition of huge fines on the organization, reported the Associated Press (AP). "We have tried to deal with the Belarus government in good faith," said American philanthropist and financier George SOROS in a statement. "However, the authorities have persisted in their efforts to destroy independent civil society."

SOROS said that Minsk steadily stepped up pressure on the Foundation "through attacks on its management, politically motivated investigations, unjustified and exorbitant fines, and the seizure of its bank accounts."

In March, despite the Foundation's taxfree status, Belarus tax officials began to audit it. Also in March, Belarussian authorities refused entry to Peter BYRNE, the executive director of the Minsk office of the Soros Foundation, accusing him of supporting the political opposition and interfering in the domestic affairs of Belarus.

In May, Belarus tax authorities demanded $3 billion in taxes and fines from the Minsk office, charging it with conducting activities incompatible with its tax-free status. The Foundation then suspended its activities and sought a dialogue with the government, but the harassment and problems continued.

The Soros Foundation has invested about $13 million in Belarus over the last two years, mostly through grants for various educational and scientific establishments.

According to the acting chairman of the Belarus Popular Front—the leading opposition group—Lyavon BORSHCHEVSKY, the moves against the Foundation were "the actions of a totalitarian regime

that cannot permit education and culture to be outside its control," said AP.

Ukraine Announces Privatization Program

· Ukraine's State Property Fund on Thursday that it will sell 58 companies this month on the country's over-the-counter stock market, reported Bloomberg News. The Fund plans to sell shares worth 3.9 million hryvnia (about $2.1 million) during September. In October, it will sell shares in 139 companies, worth about 50 million hryvnia.

The State Property Fund also said that it is preparing a series of sales of some of the Ukraine's biggest companies, including enterprises in the energy, petrochemicals, and metallurgy sectors. Most stock trading in Ukraine takes place on the over-the-counter market.

Ukraine Power Co. to Sell Stake

· One of Ukraine's main power companies, Donbassenergo, is preparing to sell a 30.09 percent stake to a strategic investor, reported Reuters. A strategic investor would be required to invest $693 million in a five-year period. A date to tender the stake has not yet been set.

Donbassenergo produces 14.8 percent of Ukraine's power and incorporates five power stations. The government plans to retain a 51 percent stake in the company and employees hold a 18.91 percent stake. The company's authorized capital is 236.64 million hryvnia, with 23.64 million shares issued at a value of 20,000 hryvnias per share.

South Caucasus & Central Asia

EIU Forecasts 15 Percent Growth for Georgia

· In its third quarter Country Report on Georgia, the Economist Intelligence Unit (EIU) has revised upwards its forecast for 1997 gross domestic product (GDP) growth to 15 percent. The new forecast was prompted by a high rate of GDP growth in Georgia in the first half of 1997. The International Monetary Fund (IMF) has projected GDP growth of 8-10 percent in Georgia this year.

The EIU cautions, however, that such a high rate of growth needs to be seen in the context of the economic collapse that occurred in 1993, and it

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masks a continuing need for further restructuring, if longer-term sustainable growth is to be achieved.

Nonetheless, the overall economic outlook does appear to be improving. Georgia experienced a drop in the rate of inflation during the first half of the year, which has led the EIU to revise its forecast for 1997 inflation to around eight percent. It also noted that Georgia's new permanent currency, the lari, seems set to remain stable.

Other factors which are likely to contribute to a sustained improvement of the economic situation include the fact that tax collection is improving and the evidence that consumers are starting to pay their arrears for electricity.

The EIU also expects that increasing investment in the energy sector should alleviate the energy shortages which have hindered recovery and that further privatization will help lay the foundation for a more intensive restructuring of industry.

Georgia should also benefit from an improvement in communications throughout the region, including a planned ferry link to Odessa and a pipeline bringing Caspian oil to the west. Thesedevelopments are expected to promote Georgian industry and exports.

World Bank $65 Mln Loan for Georgia

· The World Bank on Thursday approved a $60 million Second Structural Adjustment Credit (SAC II) and a $5 million Second Structural Adjustment Technical Assistance Credit (SATAC II) to Georgia, said a World Bank press release. The SAC II will consolidate the stabilization gains recently achieved and strengthen the current economic recovery. The SATAC II will enhance the capacity of the Georgian government to implement the structural reform program supported by the SAC II.

The SAC II aims to strengthen public finance while maintaining a prudent monetary policy; develop the private sector; and alleviate poverty.

The SATAC II will be divided seven components: judicial reform; financial sector development; energy sector reforms; social protection; health care reform; resource mobilization; and improvement of the disemination of public information.

AIOC Further Delays Oil Flow

· Terry ADAMS, head of the Azerbaijan International Operating Company (AIOC), the international consortium developing three major Azeri Caspian Sea oilfields, said today that "early" oil from the project will not be exported until November 7, reported Interfax. The first oil output was previously scheduled to be exported by October 1. ADAMS did not give a reason for the delay.

US Names New Ambassador to Azerbaijan

· US President Bill Clinton announced on Thursday his intent to nominate Stanley T. Escudero, a Career Member of the Senior Foreign Service, to be US Ambassador to the Republic of Azerbaijan, said a White House press release. Ambassador Escudero is currently serving as US Ambassador to the Republic of Uzbekistan.

Ambassador Escudero has over 30 years of foreign service including extensive experience in Central Asia, Iran, South Asia, the Middle East, and Africa as well as in Washington. From 1992-1995, he served as Ambassador to the Republic of Tajikistan.

Aliyev Cancels Trip to Moscow

· Azeri President Geidar ALIYEV has canceled plans to attend Moscow's 850th anniversary festivities to protest certain articles in a Russian-Armenian military cooperation treaty, signed last week.

Turkmenistan's President Recuperating

· Turkmen President Saparmurat NIYAZOV will remain in a German hospital until at least mid-September to recover from Monday's heart operation, said RFE/RL Newsline. Doctors say that NIYAZOV recuperating well, but should remain in Germany for the standard two-week recovery period.

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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