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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, September 8, 1997

Russian Federation


Russia-Chechnya Oil Accord Expected

· Russian First Deputy Prime Minister Boris NEMTSOV told Russian television on Sunday that an agreement between Russia and Chechnya on oil tariffs would be signed in Moscow today. A Chechen delegation, led by Southern Oil Co. head Khozh-Akhmed YARIKHANOV, was to arrive in Moscow.

YARIKHANOV told Interfax that all obstacles for signing the agreement on the transport of Azeri Caspian Sea oil from Baku to the Russian port of Novorossiisk, via Chechnya, had been cleared.

According to NEMTSOV, however, the Russian government has not backed a compromise deal on the tariffs, offered to Chechnya last week by Russian Security Council secretary Ivan RYBKIN. NEMTSOV, who is also Fuel and Energy Minister, said that Moscow intended to show the Chechen side that it is ready to implement plans for the oil to bypass Chechnya, should Grozny fail to agree to its terms.

NEMTSOV said that there are eight alternative routes for transporting Azeri oil including the possibility of shipping it by tanker to Astrakhan, on the Volga, from where it would be transshipped.

Luzhkov Admits Presidential Ambitions

· The extravagant festivities to commemorate Moscow's 850th anniversary are the beginning of a campaign by Moscow Mayor Yuri Luzhkov to run for the Russian presidency in 2000, according to today's Financial Times. Speaking at the closing ceremonies of the celebrations, LUZHKOV said that Moscow will lead Russia's other regions in "striving for our country's acquiring the greatness and strength we have the right to announce to the world."

Nezavisimaya Gazeta noted today that, during the unveiling of Moscow's giant new monument to Tsar Peter the Great, LUZHKOV promised that all the lands once conquered by Peter the Great would be returned to Russia, with Sevastopol on Ukraine's Crimean Peninsula first in line for repatriation. The Russian media has denounced LUZHKOV's statement as something that endangers Russia's relations with its neighbors.


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Duma to Probe Big Privatization Deals

· The Russian State Duma on Friday ordered the Russian Audit Chamber to investigate this summer's auctions of government stakes in four companies: telecom holding company Svyazinvest, metals giant Norilsk Nikel, and large oil companies Sibneft and Tyumenneftegaz. The chamber has been instructed to "pay special attention to" how the starting prices were established, the legality of the procedure for selling the state stakes, and the origin of the funds received for the shares.

Originally, the Audit Chamber was only expected to investigate the auctions for Svyazinvest and Norilsk Nikel, both of which were won by affiliates of Oneximbank. According to Saturday's Seg

Today's News Highlights


This Week's Happenings

ILO Plans Moscow Bureau

Russian-US Small Business Mtg

Aeroflot-Air France Deal

Menatep Exec. to Itar-Tass

Itochu-Rosprom Deal

Lukoil to Expand in US

South Caucasus & Central Asia

Japan Delegation in Uzbekistan

Daewoo-Tashkent Plan Bus. Ctr.




September 8, 1997

Intercon's Daily

This Week's Happenings

¨ Belgian Foreign Minister Erik DERYCKE will pay a state visit to Moscow from September 7-9 to hold talks with his Russian counterpart Yevgeny PRIMAKOV and other officials.

¨ Reigning Prince Hans Adam II of Liechtenstein will arrive in Moscow on September 8 for a working visit at the invitation of the Russian government.

¨ French Foreign Minister Hubert Vedrine will visit to Moscow from September 8-9 to meet his Russian counterpart Yevgeny Primakov and complete preparations for a state visit by French President Jacques Chirac later this month.

¨ Turkish Prime Minister Mesut YILMAZ will visit Ashgabat and Almaty on September 8-12 for talks on natural gas sales and cooperation in the energy sector. In May, Turkey signed an agreement with Turkmenistan on the purchase of Turkmen gas, to be transported via Iran. Ankara would also like to discuss the transport of Kazakh and Azeri oil to Mediterranean oil terminals via Turkey.

¨ A five-day international conference, "Natural Calamities. Construction. Security," and the "Construction-97" exposition opened in Vladivostok on September 8. It will be attended by specialists from 12 countries of the Asia-Pacific region and Europe. Over 50 firms will display advanced technology, building materials as well as Russian- and foreign-made machinery.

¨ Russian First Deputy Prime Minister Boris Nemtsov will tour the Khanty-Mansi National Okrug in Western Siberia from September 11-13, visiting the cities of Kogalym, Surgut, and Khanty-Mansiisk. Nemtsov will be accompanied by Boris Brevnov, chairman of electricity monopoly Unified Energy Systems (UES); Vagit Alekperov, president of the oil company LUKoil; and Yuri Bespalov, president of state oil holding company Rosneft.

¨ A five-day international conference on the nuclear non-proliferation opens on September 8 in the Kazakh cities of Almaty and Kurchatov, located on the former Semipalatinsk nuclear test ground.

odnya, the addition of the two oil companies to the investigation list was the result of lobbying by Oneximbank, which hopes to divert public attention from itself.

The Audit Chamber was instructed to submit a report to the Duma before September 19.

UN's ILO Plans Moscow Bureau

· The Russian government and the International Labor Organization (ILO) on Friday signed an agreement on setting up an ILO bureau in Moscow. The agreement extends the framework program for cooperation between Russia and the ILO. Two long-term projects are envisioned: the introduction of module systems for training workers in Russia (centers for work on this project have already been set up in Moscow and St. Petersburg) and a workplace program to prevent alcoholism and drug addiction.

In addition, ILO experts will address Russian problems in developing enterprises and creating new jobs, increasing labor productivity at medium and small enterprises, and creating an information system for labor protection. ILO experts also drafted a plan for amendments and supplements to Russian legislation on labor protection.

Michel Hansenne, Director-General of the International Labor Bureau of the ILO who signed the agreement, met with Federation Council deputy speaker Vasily Likhachev to discuss the ratification by Russia of a package of conventions of the ILO. Hansenne said that the ILO is concerned over human rights violations in Russia connected with the non-payment of wages.

Russia-US Small Business Groups Meet

· A delegation from the US Small Business Administration (SBA) joined the SBA's Russian counterpart in Moscow last week to concentrate on fostering US and Russian small business cooperation, according to US Newswire. The meeting, which included more than 30 American and Russian government and private sector representatives, was held as part of the ninth meeting of the Gore-ChernomyRdin Commission.

"For small businesses, foreign trade opportunities begin with international cooperation and the chance to understand the markets and business customs of

When you need to know it as it happens




September 8, 1997

Intercon's Daily

another country," SBA Administrator Aida Alvarez is quoted as saying. "The Gore-Chernomyrdin Commission is certainly achieving that goal."

In February 1997, then-SBA Administrator Philip Lader and his Russian counterpart, Chairman Vyacheslav Prokhorov, met in Washington in the first joint working group session between the two nations. At that time, an action plan for 1997 was adopted. The major goals are: increasing awareness of issues relating to small-business support and development; increasing knowledge of the programs and services of the SBA and the Russian State Committee for the Support and Development of Small Business (SCSME); and increasing bilateral trade opportunities between the small-business concerns of both countries.

This session built upon those objectives, highlighted the progress made since the February meeting, and established the direction and priorities for the future.

A major step toward achieving those goals has been the implementation of a web site for the GCC Small Business Working Group. The Business Collaboration Center worked closely with the SCSME to create a joint SCSME/SBA web site. This web site is available at http://gcc.bcc.ru/.

The Working Group members represent both public and private entities which are focusing their efforts on legislative and regulatory initiatives in Russia, improving financial programs to benefit American and Russian small businesses, creating strategic small-business partnerships between US and Russia, and helping SBA's Russian counterpart improve its delivery of programs and services through an "exchange of experts" program.

In the US, more than 22 million businesses employ over half of the private work force and account for more than 50 percent of annual sales receipts. In Russia, nearly one million small businesses produce 12 percent of the gross domestic product (GDP).

Aeroflot-Air France Sign Partnership Pact

· Russian Aeroflot International Airlines and Air France signed an agreement in Moscow Friday on cooperation in the fields of passenger services, freight, training, and maintenance, reported Xinhua, citing Aeroflot director Valeri Okulov. The agree

ment also calls for the two sides to adjust their flight schedules to enable Air France to extend its network in Russia and across the Commonwealth of Independent States (CIS) and allow Aeroflot to do the same in Europe, Africa, Latin America, and Southeast Asia, where Air France is well established, he said.

A new joint freight service on the Paris-Moscow route will be created on September 17, said Air France Managing Director Marc Veron.

Menatep Exec. Named to Itar-Tass

· Leonid Nevzlin, first deputy chairman of the board of directors of the Menatep group, has been appointed by Russian Prime Minister Viktor Chernomyrdin to become first deputy director general of state news agency Itar-Tass, reported Itar-Tass today. Nevzlin had been working at Menatep bank since 1987 and was one of its founders. Nevzlin replaces Yuri Poroikov at Itar-Tass.

Itar-Tass Director General Vitaly Ignatenko said Nevzlin will "work to adapt the news agency to the market economy conditions."


Itochu-Rosprom Sign Partnership Deal

· Japanese trading company Itochu Corp. will sign a comprehensive business alliance agreement with Russia's Rosprom Group for the production, refining, and sale of oil and oil products, reported Dow Jones today, citing an Itochu official. The cooperation agreement is also expected to involve the sale of textiles, lumber, and chemicals, which will be produced by Rosprom.

Rosprom is a major conglomerate of financial and mining companies, led by Menatep bank, and owner of the Tyumen oil field, one of the largest oil reserves in Russia.

Itochu president Minoru Murofushi is expected to sign the agreement in Moscow later today with Rosprom chief Mikhail Khodorkovsky.

The accord will also call for transfer of technologies, while obliging the two parties to consider joint investment in projects in Russia. The joint working group of officials from both sides will decide on projects suitable for investments.

When you need to know it as it happens




September 8, 1997

Intercon's Daily

UES Names Consultant for Bond Issue

· Russian electricity monopoly Unified Energy Systems (UES) on Thursday named a consortium of SBC Warburg, Brunswick, and Salomon Brothers as financial consultant for a convertible bond issue, reported Interfax. UES and the consortium were to sign a contract and start preparing for the bond issue, which is scheduled for late November. Russia's Vneshtorgbank will participate in the placement.

The three-year convertible bonds will be guaranteed by government-owned UES shares, and the bulk of the proceeds from their sale will go into the federal budget this year, according to a presidential decree on the issue. The bonds are expected to be guaranteed by over three percent of UES stock worth over $1 billion in an offering open to nonresidents.

UES chairman Boris BREVNOV said that selling shares as an international offering of convertible bonds will bring UES shareholders maximum returns. UES will retain 25 percent of the proceeds from the convertible bond sales to modernize power generating capacity, he said.

Lukoil to Expand US Gas Station Network

· Russian oil conglomerate Lukoil announced on Friday that it plans to invest $240 million over the next three years to create a network of 2,000 service stations in the US by the year 2003, reported Reuters. Lukoil's 50-percent-owned Texas affiliate Nexus Fuels has said it has access to 5,000 sites near supermarkets.

Speaking at the opening of a station and motel on a highway outside Moscow, Lukoil President Vagit ALEKPEROV said that Lukoil will open 25-30 US stations by the end of this year. Lukoil has opened four gas stations in the US since July.

ALEKPEROV also said that oil production in the first half of the year was up, compared with last year, and predicted that 1997 output will total about 60.5 million, up two million tons from 1996.

South Caucasus & Central Asia

Japan Promotes Relations with Uzbekistan

· Uzbek President Islam KARIMOV told a visiting Japanese government delegation on Saturday that his country "favors large-scale ties with Japan," reported Itar-Tass. Japanese Minister of State and Economic Planning Agency director-general Taro ASO led the delegation.

ASO stressed that the purpose of the visit is to broaden economic cooperation between the two countries. He noted that Japanese investments in Uzbekistan have reached $1 billion.

Aso and Karimov also discussed the protection of investments, and ways to avoid double taxation and expand bilateral cooperation among ministries, departments, enterprises, and organizations.

Aso also met Prime Minister Utkur Sultanov to discuss ways to develop regular air service between the two countries.

Japan agreed to provide 400 million yen to deliver agricultural equipment and machinery to Uzbekistan and four million yen to support its State Arts Museum.

Daewoo to Built Bus. Center in Tashkent

· South Korea's Daewoo Corp. and the Tashkent city council plan to build a business center in the Uzbek capital for an estimated $325 million, reported Reuters. The two sides will set up a 70-30 joint venture, Daewoo-Tashkent, with capital of $46.8 million, to build the center. "The business center will be build by the end of the year 2000. The financing and construction works will be launched in November," Reuters cited a city council official as saying.

The project calls for construction of a complex of buildings in the center of the city, including a 450-room hotel, a 500-room accommodation complex, and sports and trade centers. Construction will be financed by the venture's founders and through a $175 million loan from a consortium of Korean banks.

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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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.

When you need to know it as it happens