DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 908,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, September 9, 1997

opened a criminal case into the public executions of two people in Grozny last week, according to the Associated Press (AP). The proceedings are based on a Russian criminal code that calls for punishing collusive actions that cause death, said Aleksandr ZVYAGINTSEV of the Prosecutor's office. It is not clear how Moscow intends to impose punishment on the Chechen government.

Chechen authorities last week executed a man and a woman convicted under Islamic Sharia law, causing an outcry from Russian officials and human rights groups. The Chechen leadership has argued that the public executions are necessary to restore law and order in the republic.

Chechen Vice President Vakha ARSANOV told Ekho Moskvy radio that the actions of the Russian Prosecutor's office are laughable. "I spit on Russia…Russia means nothing to us. We are an independent state," he said.

The Chechen Interior Ministry told Itar-Tass that more than 30 people are awaiting sentencing from Sharia trials in Chechnya and some may face the death penalty. Interfax reported today that Chechnya plans to publicly execute two more convicted murderers on Wednesday.

Nemtsov to Head Resources Commission

· Russian First Deputy Prime Minister/Fuel and Energy Minister Boris NEMTSOV on Monday was named to head a special govern

Russian Federation

Politics

Russia-Chechnya Oil Agreement Signed

· Following long and contentious negotiations, Russian and Chechen officials in Moscow today signed a package of five agreements on the terms for transporting early Azeri Caspian Sea oil, reported Dow Jones. The agreements were signed by Russian First Deputy Prime Minister and Fuel and Energy Minister Boris Nemtsov and the president of Chechnya's Southern Oil Company Khozh-Akhmed Yarikhanov.

The agreements cover the terms for the restoration of the Chechen section of the Baku-Grozny-Novorossiisk oil pipeline, for financing the restoration work, and for the maintenance and security of the line. Russia has agreed to pay Chechnya $854,000 for the transport of 200,000 tons of oil through the pipeline before the end of this year. Apparently, the two sides have not agreed on a tariff level for oil passing through the pipeline next year.

The restoration of the Chechen section of the pipeline is expected to take 3-4 weeks and may not be completed by October 1, when oil is supposed to begin flowing. However, Russian oil pipeline company Transneft has said that it can move the oil via tanker, if the pipeline is not ready.

According to today's RFE/RL Newsline, the Azerbaijan International Operating Co. (AIOC)—the consortium exporting the Azeri oil through Russia—has denied recent reports that it has postponed the planned date of its first oil exports from October 1 to November 7.

Russia Prosecutor Probes Chechen Executions

· The Russian Prosecutor General's office has

Today's News Highlights

Russia

Our Home Chooses Ryzhkov

Lebed Seeking For. Investment

Russian FDA to Be Set up

Smirnoff Vodka Dispute Update

Rus.-German Space Deal

South Caucasus & Central Asia

Georgia Upbeat on 1998 Budget

German Loans for Arm., Azer.

Turkey FM in Azerbaijan

Turkey PM in Kazakhstan

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Tuesday

September 9, 1997

Intercon's Daily

ment commission charged with clarifying legislation governing the exploitation of energy resources, reported today's Financial Times. The commission will attempt to define federal vs. local interests and implement a presidential decree encouraging production-sharing agreements (PSAs).

PSAs are critical to attracting large-scale foreign investment as they are seen as a key legal device for protecting investors' tax and legal rights.

Production-sharing legislation was passed last year, but the parliament has limited the oil, gas, and mineral projects to which the law can be applied, shutting out many major oil projects with foreign interests. It is unclear how NEMTSOV's new committee will get past parliamentary objections to PSAs with foreign companies.

Another upcoming test for NEMTSOV will be the privatization of state oil holding company Rosneft. He has promised that the process will be completely transparent and legal to avoid the scandals that surrounded the recent auctions for Svyazinvest and Norilsk Nikel. "Nobody wants to step on the same rake twice," he is quoted by FT as saying.

A study conducted by Russian and foreign specialists last year suggested that the development of six large oilfield projects, under production-sharing legislation, could bring huge benefits to the economy, according to FT. The six identified projects—in the Arctic North, western Siberia, and the Far East—could expand Russian GDP by $450 billion, creating 550,000 jobs, and adding $260 billion to federal government coffers.

Our Home Chooses Ryzhkov as Deputy Speaker

· The Russia is Our Home faction in the State Duma has chosen Vladimir Ryzhkov as its candidate for the post of Duma first deputy chairman, reported Russian television RTR today. The deputy chairman's position opened up last week following the resignation of Aleksandr SHOKHIN.

SHOKHIN was elected as the new chairman of the Our Home faction. Under Duma rules, a faction leader cannot hold the post of deputy speaker.

Lebed Seeks Foreign Investment for his Russia

· Russia's former Security Council secretary and

presidential hopeful Aleksandr Lebed told Itar-Tass in Krasnoyarsk Saturday that he sees the aim of his upcoming tours of Japan, South Korea, and Germany as a way to expand "a network of investments for Russia." However, Lebed noted that he intends to attract the investments solely "to support himself" should he come to power in Russia.

Economy

Ruble = 5,839/$1.00 (NY rate)

Ruble = 5,840.5/$1.00 (CB rate)

Ruble = 5,837|5,844/$1.00 (buy|sell rates)

Health Ministry Sets up FDA-like Body

· A meeting of top Russian Health Ministry officials on Monday took the decision to establish a Federal Center for Studying Side Effects of Medicines at the Ministry to control imports and domestically-made products, reported Itar-Tass. The center will be financed with money earmarked for the registration of imported medicines, it said.

Ministry officials reported that, during the first six months of 1997, Russia registered 6,630 new medications, including 771 which were produced domestically (11 percent).

However, the number of medicines found to be "defective" increased by more than nine times in 1996, compared with 1993. Russian pharmaceutical producers received 759 claims for the replacement of defective goods between January and June 1997.

For imported medicines, the number of defaults increased 15 times between 1993 and 1996 and continued to grow in 1997. The bulk of low-quality medicines were brought from India and Bulgaria.

Experts at the meeting recommended that pharmaceutical firms that received more than one claim of defective products be stripped of their licenses.

Business

US-Russia Commission to Eye Vodka Dispute

· Russian President Boris Yeltsin on Thursday proposed that a dispute between Russian and US vodka makers concerning the Smirnoff name be considered this month by the US-Russian Commission on Technological and Economic Cooperation

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(Gore-Chernomyrdin Commission). The next regular session of the Commission will take place in Moscow on September 19_24.

Britain's International Distillers & Vintners Ltd. (IDV), which includes the US firm Heublein, owner of the Smirnoff trademark, has welcomed the proposal, reported Interfax. According to an IDV press release, the company's chief legal expert David Scott believes that the protection of long-established rights to intellectual property plays an important role in the attraction of investments to Russia.

At the Russian Food Products '97 exhibition on Thursday, Yeltsin backed the Russian Smirnov's effort to keep US producers of Smirnoff vodka out of the Russian market.

Legal proceedings between Heublein and the Moscow company P.A. Smirnov & Heirs, which began producing Smirnovskaya Vodka in 1990, started in 1994. The dispute centers on the right to use the Smirnoff trademark.

In August, the Russian Supreme Court canceled the rulings adopted by the Krasnodar Regional Court and the Krymsk District Court in 1995-1996 which banned the import and sale of US-produced Smirnoff vodka in Russia, said IDV. However, the Supreme Court decided to hold additional proceedings on the Smirnoff case.

The P.A.Smirnov & Heirs moved the production of Smirnovskaya Vodka production to Moscow from the town of Krymsk, Krasnodar region in 1995. The Moscow City Court has begun proceedings in three cases involving the Smirnoff trademark, according to the IDV release.

Russian-German Space Launch Deal

· Germany's Dresdner Bank and the Bremen space company EuRokot Launch Service, a joint venture between German DASA and the Russian Khrunichev Space Center, have concluded a $35 million deal in connection with of the German-Russian project on the Rokot booster, reported Prime-Tass. Under the agreement signed in Bremen on Monday, the parties agreed to spend the $35 million to modernize the Russia's Plesetsk cosmodrome, located in the northern Arkhangelsk region.

The first launch of a Rokot booster from Plesetsk, according to EuRokot, is scheduled for the end of 1998. The project specifies no less than six launches of the booster from 1999, according to Prime-Tass.

Rokot is a new name for Russia's decommissioned and modified SS_18 ballistic missiles, which will be used to launch commercial satellites in orbit. The Russian government ordered that Plesetsk's launch pad for Kosmos rockets be adapted for for Rokot.

South Caucasus & Central Asia

Georgia Upbeat on 1998 Draft Budget

· Georgian Finance Minister Mikhail CHKUASELI touted the government's draft 1998 budget to reporters on Monday, noting that it features a budget deficit of only 2.2 percent of gross domestic product (GDP), reported Reuters. The draft calls for expenditures of 1.138 billion lari, seven percent more than in 1997, and revenues of 961 million lari, an increase of 36.8 percent from 1997. This leaves a deficit of 177 million lari, down from 200 million in 1997. The budget must be approved by parliament.

Georgia has recorded the highest economic growth of any former Soviet republic this year, but it comes from a very low base. GDP increased by 14.8 percent in the first half of 1997, compared with the same period in 1996. Industrial output rose 11.8 percent

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during January-July and inflation was held down to only 3.4 percent.

German Loans for Armenia, Azerbaijan

· The German Federal Ministry for Economic Cooperation and Development has decided to extend loans to Armenia and Azerbaijan worth DM39 million (about $21.5 million), reported Itar-Tass on Monday. A total of DM25 million will go toward the reconstruction of the Kanaker hydroelectric power station in Armenia and DM14 million marks will fund the creation of a security system at Baku airport. Under an agreement reached with Azerbaijan and Armenia, the reconstruction will be carried out by German engineering firms.

Turkish Foreign Minister in Azerbaijan

· Turkish Foreign Minister Ismail Cem met his Azeri counterpart Hasan HASSANOV and President Geidar Aliyev in Baku on Monday to discuss bilateral and regional relations, as well as the possibility of transporting Azeri Caspian Sea oil through Turkey.

ALIYEV urged Ankara to participate more actively in efforts to settle the Nagorno Karabakh conflict. He also complained to the Turkish minister about illegal Russian deliveries of weapons to Armenia and the recent signing of a Russian-Armenia military cooperation accord.

ALIYEV also endorsed Turkey's proposal that a long-term pipeline for Caspian oil to flow via Turkey to the Mediterranean Sea port of Ceyhan. According to ALIYEV, however, at least four other pipeline projects are currently being studied, each of which has certain advantages. In addition to Turkey, Russia, Georgia, and Ukraine are vying for the strategic pipeline to run through their territories.

Turkish Prime Minister in Kazakhstan

· Turkish Prime Minister Mesut Yilmaz arrived in Kazakhstan today for a three-day official visit aimed at increasing Ankara's influence in the Central Asian republic. YILMAZ has placed special empha

sis on the development of relations with Turkic-speaking countries in the former Soviet Union. He had also planned to travel to Turkmenistan, but canceled the trip because of Turkmen President Saparmurat NIYAZOV's recent heart surgery.

YILMAZ is accompanied by a delegation of 100 Turkish businessmen, parliamentarians, and government officials, including Energy Minister Cumhur ERSEMER. Discussions will focus on the transport of Caspian Sea oil across Turkey to world markets.

Kazakh Oil to Pass Thru Iran

· Kazakh President Nursultan Nazarbayev has announced that his country is considering expanding its oil exports via Iran, reported Compass news on Monday, citing the latest issue of the Kazakh magazine All Over the Globe. Nazarbayev told the magazine that Kazakhstan's oil exports, which will total some 27 million tons this year, are expected to reach 170 million tons during the next five years.

In February, Kazakhstan started to export two tons of oil via Iran, and aims to increase the figure to six million through the construction of new pipelines.

Kazakh experts have started preliminary studies to determine new Iranian routes for the transfer of Kazakh crude oil to the Persian Gulf. Kuwait recently announced its interest in investing in the oil transfer project, said the magazine.

Kazakh Wheat Harvest Forecast

· The US agricultural attaché in Almaty estimates the marketing year (MY) 1997/1998 wheat crop in Kazakhstan at 7.5 million metric tons, despite the fact that a lack of rainfall has damaged crops in some districts, according to Futures World News (FWN). The Kazakh government expects MY 1997/1998 wheat exports to total about 3.0 million metric tons. The government is planning to purchase only 200,000 metric tons for state needs. However, the government also plans to collect past due debts from grain producers, totaling 1.2 million metric tons of wheat.

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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