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, October 10, 1997

Russian Federation

Politics

Yeltsin Pledges to Sign Land Mine Ban

· Addressing the Council of Europe summit in Strasbourg today, Russian President Boris YELTSIN made a surprise announcement that Russia will sign on to the international land mine ban. "Even though major Western powers say `No,' I say we support and will strive for the goal of resolving once and for all this problem and sign the convention," he is quoted by the Associated Press (AP) as saying. The international treaty banning land mines is due to be signed in Ottawa, Canada, in the near future.

Addressing the summit, YELTSIN called for a "Greater Europe" without divisions in which no single state would impose its will on others and there would be equality among both large and small nations, according to RFE/RL.

The Russian president also pledged that Russia will honor all commitments it made to the Council, when it become a member 20 months ago. He said that included ending all executions under the death penalty. He said he was aware of the negative reaction of the West towards recent public executions in Chechnya and promised that Russia would work to end "this medieval practice."

YELTSIN also announced that he and French President Jacques Chirac had decided over dinner last night to invite the presidents of Armenia and Azerbaijan, Lev Ter-Petrosyan and Geidar Aliyev, to Moscow for quadrilateral talks on the Karabakh conflict, reported Itar-Tass. YELTSIN said he would invite the US to participate in the talks as it is a member of the OSCE Minsk Group, which is negotiating a settlement to the conflict. "We will try to make yet another step forward" toward peace, he said.

Maskhadov Replaces Shariah Court Judges

· Chechen President Aslan MASKHADOV signed a decree dismissing Shamsudin Batukayev as chairman of the supreme Shariah court on the grounds of "committed errors and drawbacks in the work of Shariah courts," Itar-Tass. Batukayev was made court chairman in 1995 on orders of late Chechen president Dzhokhar Dudayev who introduced Shariah courts during the war with Russia.

Maskhadov's decree also dismisses all board members of the supreme Shariah court. He will appoint a new Shariah court chairman and board based on recommendations by the Mufti's office.

It is not clear how the personnel changes will affect Chechnya's stand on public executions. Chechen authorities last month carried out four public executions, based on sentences passed down by the outgoing Shariah court.

Kulikov Questions Freeh's Motives

· Russian Interior Minister Anatoly KULIKOV said today that the US government's statements of concern about the growing threat of Russian mafia abroad was aimed at scaring off foreign investors, reported Reuters. KULIKOV said that more organized crime gangs are operating in Russia than were estimated by FBI director Louis FREEH in recent testimony to Congress. But he denied FREEH's contention that the Russia mafia threatens economic reform efforts and poses "imminent dangers" to the US.

Today's News Highlights

Russia

Gates in Moscow

Soros in Moscow

Dubinin on Redenomination

Duma Rejects Budget Draft

AT&T Gets in ISDN Contract

South Caucasus & Central Asia

Kazakh Prime Minister Replaced

S&P's Rates Kazakh Bank

KazMinCo Awards Contract

Placer Dome Settles Dispute

Politics-Economics-Business

Page

Friday

October 10, 1997

Intercon's Daily

Ruble = 5,872/$1.00 (NY rate)

Ruble = 5,872/$1.00 (CB rate)

Ruble = 5,859|5,885/$1.00 (buy|sell rates)

for the Russian Central Bank will be launched on November 12, reported Itar-Tass. Dubinin noted that the formation of the system is expected to be completed by 1999. Implementation of the project will allow Russia's banking system to achieve the level of international banking standards as well as to settle the problem of accelerating calculations all over Russia.

GATES also met with Lukoil president Vagit Alekperov today to discuss a large contract signed between Microsoft and Lukoil in September.

Microsoft is also pursuing a contract with Russian savings bank Sberbank. He is to meet with Sberbank president and chairman Andrei Kazmin today. KAZMIN told Prime-Tass that the bank had to call off its contract of 1994 with Unisys, which undertook to equip the bank's headquarters and regional offices with state-of-the-art computer technologies, because of the company's failure to successfully install and copy basic components of its software.

Soros to Invest in Russia Healthcare

· US financier and philanthropist George Soros, in Russia this week to celebrate the 10th anniversary of his Soros Foundation in the country, said on Thursday that he intends to make large investments in Russian health care over the next three years, reported Itar-Tass. At a meeting with students and teachers of the Sechenov Medical Academy, Soros described the situation in the Russian health service as "catastrophic."

He is currently financing two projects aimed at improving care for mothers and children and preventing the spread of hospital infection and tuberculosis. A microbiological laboratory is to open soon at the Moscow-based Obstetric and Gynecology Clinic to control and prevent the spread of hospital infection. The necessary equipment has been ordered and contacts are to be established via the Internet to conduct consultations between the Clinic and the Toronto Medical Center, where Russian doctors are being trained. The program will cost an estimated $10 million.

SOROS is also concerned about the spread of tuberculosis, particularly in Russian prisons, and plans to invest money in examinations and treatment for sick inmates.

May Jun Jul Aug Sep Oct

"We don't think there is anything new in that testimony," Reuters quoted him as telling reporters. "Rather the reverse—we think the goal of the testimony was to seriously damage our investment policy regarding our western partners."

KULIKOV said that crime groups operating in Russia should not be confused with Russian-speaking criminals elsewhere. "The [FBI] testimony clearly errs in equating Russian organized crime and international organized crime by Russia speakers, in Washington or another Western country," he is quoted as saying.

Economy

Bill Gates Visits Moscow

· US Microsoft president Bill Gates arrived in Moscow on Thursday for a two-day visit to discuss software piracy and investments with Russian officials. GATES met with a number of top officials and told 4,000 Muscovites in the Kremlin Palace of Congresses that Russia has a promising future in software development. He predicted Russia will become a major exporter of software, but said the piracy rate must be lowered to help the market grow.

Gates met with First Deputy Prime Minister Anatoly Chubais to discuss prospects for the development of computer technology in Russia and ways to combat software piracy.

Gates held talks with Central Bank chairman Sergei Dubinin who told him that the first satellite for creating a global calculation and information system

When you need to know it as it happens

Politics-Economics-Business

Page

Friday

October 10, 1997

Intercon's Daily

Duma Rejects Budget, But Will Talk

· The Russian State Duma on Thursday rejected the government's draft 1998 budget in the first reading by a vote of 326-13, with one abstention, and sent it to a conciliation commission for reworking, reported Russian television. The commission will be made up of representatives from the government, the Duma, and the Federation Council.

The 1998 budget calls for expenditures of 472 trillion rubles ($80 billion) and revenues of 340 trillion ($58 billion) with a deficit of 4.8 percent of gross domestic product (GDP).

The Duma considers it unrealistic and too austere. Specifically, the budget forecasts tax collections to be equal to 12.4 percent of GDP, compared with 15 percent for this year, said today's Wall Street Journal. This year's project has not even come close to being realized. Also the government has proposed slashing subsidies to the regions, agriculture, and industry in order to keep down the deficit.

Dubinin Reassures on Ruble Denomination

· Russian Central Bank chairman Sergei DUBININ on Thursday reassured Russians that all the preparations for the redenomination of the ruble at the beginning of next year are on schedule. "We will start delivering money to depositories and cash and settlement centers in December so that on the very first working day of January banks could receive new banknotes," he is quoted by Interfax as saying.

Russia currently has six billion banknotes of nine different denominations in circulation, according to the chairman. After the redenomination and issue of new banknotes in 1998, three billion banknotes of five types will remain.

Business

AT&T, Sovintel Introduce ISDN in Russia

· US AT&T and Russia's Sovintel announced on Thursday the introduction of high-speed Integrated Switched Digital Network (ISDN) service between the US and Russia, reported M2 Communications. The new connection will carry digitized voice, data, images, and live video at speeds from 56/64 kilobits per second (Kbps) up to 384 Kbps using inverse multiplexing. Russia is the 47th country reached by AT&T Global ISDN service.

In Russia, Sovintel access to AT&T Global ISDN will be available first in Moscow and St. Petersburg, where new fiber networks can provide high-quality transmission. Distribution to other cities will be added over time.

"ISDN is developing at a rapid speed in Russia," said Jean-Pierre Vandromme, deputy general director of Sovintel. "Video conferencing is the first and most important ISDN application our customers use, as it cuts down on travel expenses and facilitates communication between offices." Because ISDN carries voice, data, and images at the same time, it is ideal for videoconferencing, multimedia, and telemedicine.

ISDN rates to Russia for AT&T business customers (Tariff 1) are approximately $1.63 per minute peak period, and $1.22 per minute off-peak (1 pm to 7 am).

Sovintel is a full-service telecom carrier in Moscow, providing high-quality international communications services to high-volume business customers. Sovintel uses its own fiber-optic and satellite links and has its own area code (501) which can be accessed from most of the world's major industrial countries via public telephone network. Russian state telecom company Rostelekom owns 50 percent of Sovintel.

South Caucasus & Central Asia

Kazakh Prime Minister Replaced

· Kazakh President Nursueltan Nazarbayev told a joint session of parliament today that he has accepted the resignation of Prime Minister Akezhan Kazhegeldin and the cabinet. "Reforms have been insufficient and in some aspects not yet yielded expected results," the president told the parliament.

Nazarbayev then nominated Kazakh state oil company president Nurlan Balgimbayev as the new Prime Minister and his candidacy was approved nearly unanimously by parliament.

KAZHEGELDIN, who is currently in Switzerland undergoing medical treatment, ostensibly resigned for health reasons. However, KAZHEGELDIN, a former businessman who became prime minister in October 1994, made many powerful enemies as a result of his economic reform plans, particularly in the oil and gas sphere. His recent admission that he had collaborated with the KGB during the Soviet era

When you need to know it as it happens

Politics-Economics-Business

Page

Friday

October 10, 1997

Intercon's Daily

caused further speculation that he would soon be dismissed.

KAZHEGELDIN's removal will be met with concern, if not with surprise, by Western investors who saw him as a guarantor of market reforms and their investments in Kazakhstan.

S&P's Rates Kazakhstan's Halyk Bank

· Standard & Poor's today assigned its single-'B'-plus long-term counterparty rating and its single-'B' short-term counterparty rating to Halyk Savings Bank of Kazakhstan, said S&P's CreditWire. The outlook on the ratings is stable. Halyk Savings Bank ratings reflect its status as a hybrid commercial bank with a public purpose.

Halyk Savings Bank should receive government support for the foreseeable future because: (1) it is one of only three commercial banks of significant size in Kazakhstan and therefore critical to the financial system's development and to the economy. The financial system is still underdeveloped, so the bank's small absolute size on an international scale is not yet commensurate with the size of the economy or with the population of Kazakhstan; (2) it holds 70 percent of individuals' deposits and operates the only comprehensive branch network in the country; and (3) it represents the only means by which the government can carry out many of its payments and financing programs.

Halyk's prominent position in Kazakhstan offsets the issue of its small absolute size on an international scale and of the concentration of assets. The bank is poised for continued high growth, to be funded in part by a proposed eurobond offering.

KazMinCo Awards Feasibility Study

· London-based Kazakhstan Minerals Co. (KazMinCo) announced on Tuesday that, following a competitive tender process, it has awarded the Final Feasibility Study on its Varvarinskoye gold-copper project in Kazakhstan to Bateman Engineer

ing Inc. of Denver, said a company press release. Bateman, specialist process and construction engineers, has assembled a team of expert subconsultants including Knight Piesold (geotechnical), Mintec (geology and reserves) and AATA (environmental) to assist with the Study. Work commenced in August and is scheduled to be completed in May 1998.

Varvarinskoye is located in northern Kazakhstan, 130 km southwest of the regional capital of Kustanai, and has excellent infrastructure and site access.

KazMinCo has mining title for an 86 percent interest in the deposit. A Subsoil Users Agreement has been signed with the Kazakh government.

In addition to the Varvarinskoye Feasibility Study, MRD Inc. of San Mateo, California, is nearing completion of a Prefeasibility Study on KazMinCo's Nurkazgan copper-gold porphyry project (88.5 percent owned by KazMinCo), details of which will be announced in November.

Placer Dome Settle Kazakh Dispute

· Canada's Placer Dome Inc. announced on Wednesday that it had reached a settlement on a dispute with the government of Kazakhstan arising from an April 1995 agreement for exploration and development of the Vasilkovskoye gold deposit under which Placer Dome paid the government a refundable $35 million deposit, said Canada NewsWire. The Kazakh government has made a cash payment in the amount of $25 million to Placer Dome under a settlement agreement in which the parties set aside all further claims against each other.

"We are pleased to have resolved our differences and to have recovered most of our exploration expense payment from 1995. Now we can resume building a mutually beneficial relationship with the Kazakhstan government. Placer Dome remains very interested in the geological potential of Kazakhstan," Placer Dome President and CEO John WILSON is quoted as saying.

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

available for non-profit institutions.

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

Politics-Economics-Business

Page