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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, October 2, 1997

Russian Federation


Yeltsin Considering Another Term?

· Russian President Boris YELTSIN today coyly hinted that he may yet decide to run for another term in office in the 2000 presidential elections. After being asked if he would run by reporters at a trade fair in Nizhny Novgorod, Yeltsin said: "My associates and friends in Moscow forbid me to speak on the issue," reported the Associated Press. The elections "are three years away and it's too early to discuss this matter. … Why do you bother me so early?"

Only last month, YELTSIN publicly declared that he did not plan to seek a third term in office. The turnaround could reflect a change of heart brought on by his significantly improved health or could merely be aimed at making the opposition nervous.

Yeltsin Plays Hardball with Lukashenko

· Russian President Boris YELTSIN this morning sent a telegram to Belarus President Aleksandr LUKASHENKO telling him not to proceed on a planned trip to the Russian cities of Lipetsk and Yaroslavl, just hours before the Belarus leader was scheduled to leave. Speaking on Russian television, YELTSIN chided LUKASHENKO for not asking his permission before planning a trip to Russia, stressing that before he crosses the border: "Let him first release SHEREMET."

YELTSIN is finally playing hardball with LUKASHENKO over the detention of Russian public television (ORT) journalist Pavel SHEREMET. Moscow has repeatedly asked Minsk to free and drop charges of illegally crossing the border against the journalist and his cameraman. LUKASHENKO has several times appeared to be waffling and then refused, insisting that SHEREMET was part of plot to dis

credit him by the Russian media and certain anti-integration Russian government officials.

The dispute has become a major strain on bilateral relations and now also seems to be affecting the Belarus economy. The value of the Belarussian ruble fell to 39,150 to the US dollar on Thursday from 37,800 on Wednesday morning.

Interpol Russia Head Named

· Major-General Vladimir Ovchinsky has been named the new chief of Interpol's National Central Bureau in Russia, said the press service of the Russian Interior Ministry on Wednesday. Ovchinsky, who was working as an aide to the interior minister, has written several books on combating organized and international crime.

Chubais Defends Kokh against Corruption

· Russian First Deputy Prime Minister Anatoly Chubais on Wednesday defended former Deputy Prime Minister and State Property Committee chief Alfred Kokh against charges that he had accepted a bribe from Oneximbank. "I have known Kokh for ten years, and I know that Kokh is an honest man," he is quoted by RIA Novosti as saying.

He said that the investigation of KOKH is based on "lies" printed in newspapers owned by bankers who are unhappy with the results of the Svyazinvest auction.

CHUBAIS said that Kokh's book on privatization in Russia, which

Today's News Highlights


Central Bank Appointments

Russian Mission Back to Grozny

Russian Inflation Down

ICN Buys Rus. Drug Co.

European Republics

Ukraine Energy Privatization

Russian-Belarus Auto FiG

South Caucasus & Central Asia

Georgian Adoption Law

Chevron in Oil Deal w/Georgia




October 2, 1997

Intercon's Daily

triggered the scandal, is already written and "some people will find themselves in a foolish position when it is issued." He said the $100,000 "is not an advance payment for the book, but the price of copyright."

Chubais expressed confidence that the Moscow city prosecutor's office will sort out all the facts.

Deputy Moscow prosecutor Yuri Syomin said Wednesday that the grounds for opening the case against KOKH were an investigation that revealed a number of suspicious circumstances surrounding his receipt of $100,000. He noted that book experts say the terms of the contract between the author and the Swiss company Servina diverge from accepted practice, and royalties paid to Kokh greatly exceed the publishers' expected profits. He also said that the prosecutor's office had found that the contract between Kokh and Servina was concluded with the assistance of Oneximbank deputy board chairman Dmitri Ushakov.

Considering these circumstances, the Moscow prosecutor's office has opened a case and launched an investigation, said Syomin.

Russian Central Bank Appointments

· Russian Central Bank chairman Sergei DUBININ has announced that Andrei KOZLOV has been appointed first deputy chairman, reported Interfax. KOZLOV is expected to be made responsible for the work of commercial banks on the stock market.

Also former Bank first deputy chairman Aleksandr KHANDRUYEV was named as deputy chairman.

In addition, Denis KISELYOV, head of the Bank's OPERU-2 department, has been appointed a deputy chairman. KISELYOV is likely to oversee the departments for inspection of credit institutions and bank controls. He will continue to oversee the OPERU-2 department, which was created last year to control the activity of major Russian commercial banks.

Russian Mission Returns to Chechnya

· Following talks between Russian Deputy Prime Minister Ramazan Abdulatipov and Chechen President Aslan Maskhadov on Wednesday, Chechnya agreed to allow the return of some 80 Russian representatives who left Grozny late Tuesday at the insistence of the Chechen vice president.


Ruble = 5,862.5/$1.00 (NY rate)

Ruble = 5,864.5/$1.00 (CB rate)

Ruble = 5,857|5,872/$1.00 (buy|sell rates)

Russian Prices Fall in September

· The Russian State Statistics Committee (Goskomstat) said today that Russian consumer prices decreased by 0.3 percent in September. In August, consumer prices dropped by 0.1 percent.

In conjunction with the lower inflation, the Russian Central Bank has cut the refinancing rate to 21 percent from 24 percent, effective on September 29.

The Russian government is now forecasting an annual inflation rate for 1997 of 12-14 percent after 21.8 percent in 1996. The forecast for 1998 inflation is 5-8 percent.

Russian Central Bank to Retain Stakes

· The Russian Central Bank has sent a report to the State Duma saying that it wants to remain a shareholder in its foreign subsidiaries and in Russia's largest savings bank Sberbank and Vneshekon-ombank, reported Bridge News. The report said that foreign banks were refusing to lend to the subsidiaries or, if they agreed to a loan, set high interest rates, because of uncertainly over whether the Central Bank would remain a shareholder after 1999.

The Duma is expected to pass legislation that may limit the Central Bank's participation in other banks.

Rosneft-Sidanko Ownership Battle Over

· Russian oil company Sidanko has dropped its claim to ownership of oil production unit Purneftegaz, relinquishing it to state oil holding company Rosneft, Sidanko company spokesman Vladimir Vinitsky

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October 2, 1997

Intercon's Daily

told Itar-Tass today. The settlement of the dispute between Sidanko and Rosneft will clear the way for the Russian government to proceed with privatization plans for the company.

Tatneft Oil Company Issues Eurobonds

· Russian oil company Tatneft launched a $300 million, five-year Eurobond today, the first fixed-rate public bond by a Russian corporation, reported Reuters. The bond will be priced to yield 3.10 percentage points over US Treasury notes, a lower-than-expected price that reflected strong demand for the bond and a recent rally in other Russia Eurobonds, said the report.

Dresdner Kleinwort Benson is lead manager of the deal. Tatneft is Russia's fourth largest oil company.

The next Russian company expected to issue Eurobond is regional utility Mosenergo, which plans a five-year $200 million bond, via Salomon Brothers.

Russia Plans Global Satellite System

· A Russian government meeting today, chaired by First Deputy Prime Minister Anatoly Chubais, approved a special federal program for the use of the global navigation satellite system (GLONASS) by civilian consumers, reported Itar-Tass. GLONASS will make it possible to establish the location of various objects with a high degree of reliability, to improve the safety of the road and transport network of the country, to preserve fuel, to reduce considerably the operational costs and dispel the need for traditional ground navigation devices, it said.

GLONASS consists of 24 satellites, launched and operated by the Russian military. Currently only 14 of the satellites are fully operational.

The government noted that a similar system run by the US, the global positioning satellite (GPS) system, offers tough competition to GLONASS in terms of providing services to Russian consumers. This is particularly the case because Russian companies are still unable to fully provide consumers with domestically-made commercial products for using GLONASS because of economic difficulties, it said.

Chubais told the meeting that because of insufficient financing of the Russian system, Russia may find itself in a situation where its entire nuclear

potential, oriented mostly to GLONASS, will become useless. He also pointed out that demand for commercial use products compatible with GLONASS in Russia and in other countries is enormous. Therefore, he considers it necessary to create a system to finance GLONASS through fees from users of the Russian equipment for use with GLONASS, both in Russia and abroad, rather than from the budget.


ICN Pharmaceuticals Buys Another Co.

· California-based ICN Pharmaceuticals, Inc., announced on Wednesday that it has acquired 72 percent of the shares of Russia's Marbiopharm pharmaceutical company, bringing ICN's ownership of Russian drug manufacturing plants up to four, said a company press release. Marbiopharm, located 600 miles east of Moscow in the city of Yoshkar-Ola in the Volga region, generated sales of $27 million in 1996. Marbiopharm manufactures, sells and distributes a total of 74 products.

The acquisition continues ICN's global expansion strategy that has made it the leading pharmaceutical company in Eastern Europe and is consistent with the company's plans for expansion within Russia that were announced by Milan Panic, ICN Chairman and CEO, at a Board of Directors meeting held in Moscow in July.

With four pharmaceutical plants and 5,000 employees in Russia, ICN is now the leading pharmaceutical producer in Russia, with sales of $55 million for the first six months of 1997. ICN also owns pharmaceutical companies in Yugoslavia and Hungary.

"With its modern facilities and skilled workforce, this new acquisition will be a key link in the pharmaceutical manufacturing, marketing, and distribution network we are building in Russia and other countries in Central and Eastern Europe," said Panic. He added that ICN is hoping to acquire additional plants and distribution centers in Russia in the next year.

European Republics

Russian-Belarus Car FiG Created

· Russian Deputy Prime Minister Valery Serov and his Belarussian counterpart Vasily Dolgolyov signed an agreement Wednesday in Moscow to

When you need to know it as it happens




October 2, 1997

Intercon's Daily

create the Belrusavto interstate financial-industrial group, reported Interfax. The agreement says the group will include Belarussian truckmakers and Yaroslavl automakers.

The group, in which the Russian side holds a 65 percent stake and Belarus 35 percent, will produce "new vehicles in line with the Euro-2 standard," said Serov. He believes these vehicles would be competitive not only on the Belarussian and Russian markets, but also abroad.

Ukraine to Delay Sale of Energy Cos.

· The Ukrainian government has given formal approval to a list of "strategic" companies undergoing privatization in which it will retain majority stakes for three- or five-year periods, reported Reuters. The government will keep 51 percent for three years in regional energy distribution companies in Zhitomy, Kirov, Ternopil, Volyn, Zakarpattya, Cherkass, Sevastopol, and Kmelnitsky.

The State Property Fund released privatization plans for Ukraine's energy distribution and power generation companies earlier this month. The government also said it intends to retain a 26 percent stake for five years in several major companiesr.

South Caucasus & Central Asia

Georgian Passes Adoption Law

· The Georgian parliament has passed an amended law on adoption procedures on its second reading, according to Intercon sources. The latest version of the law says that if no Georgian citizen adopts a child within 30 days after coming up for adoption, foreigners can adopt the child with no restrictions. The final vote on the adoption law is expected take place next week.

Georgian President Eduard SHEVARDNADZE suspended foreign adoptions in December 1996, but he then created a special commission to govern foreign adoptions until new legislation is passed.

The presidential commission on adoptions, headed by the Georgian Justice Minister, today announced the status of 15 adoptions that were under review: two children were adopted by Americans; three cases are being considered by the Justice Ministry and will go to Americans in the near future; eight children were adopted by Georgians; one child was withdrawn by the mother; and one child has died.

Chevron Signs Deal on Georgian Pipeline

· US Chevron and the Georgian government on Wednesday signed a protocol of intent to rebuild a 300 km oil pipeline to transport 7-8 million tons of Caspian Sea oil annually to the Black Sea port of Batumi, reported Itar-Tass. The protocol was signed by Chevron Overseas Petroleum Inc., the Georgian Ministry of Fuel and Energy, and the Caspiantranscos company, following talks between Georgian President Eduard Shevardnadze and Chevron Overseas president Richard MatZke.

A contract is expected to be ready for signing on November 15. Chevron Overseas has been transporting oil from the Tengiz oil field in Kazakhstan through Georgia by rail for almost a year.

CanArgo Signs New Deal w/Georgia

· Canada's CanArgo Energy Inc. on Wednesday announced the signing of a Letter of Intent with the Georgian government for further acreage in the Republic of Georgia, reported Canadian Corp News. The accord, signed by CanArgo, the Georgian state oil company Saknavtobi, and the Georgian Ministry of Fuel and Energy is aimed at the negotiation of a Production Sharing Contract by the end of this year.

This PSC will cover the Nazrevi and Block XIII areas in the eastern part of Georgia, near Tblisi. These areas cover over 2,400 square km (590,000 acres) of the Kura Basin and the southern margin of this basin. The Kura Basin has to date been one of the most productive parts of Georgia, and contains the Samgori oilfield, which has produced over 170 million barrels of high quality oil to date.

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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