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

Tuesday, October 21, 1997

Russia Alters Caspian Sea Policy

· The Russian Foreign Ministry has dropped its proposal that Caspian Sea littoral states have jurisdiction over a 72-km offshore zone and that all these states have equal rights to develop the mineral resources elsewhere, reported Monday's RFE/RL Newsline. The proposal, which was floated at a meeting of the five littoral states in November 1996, was supported by Iran and Turkmenistan, but not by Azerbaijan and Kazakhstan.

Moscow is apparently planning to make an alternative proposal on dividing the sea's resources.

Canadian Prime Minister in Russia

· Canadian Prime Minister Jean Chretien, who arrived in Moscow on Saturday for a five-day visit, met with his Russian counterpart Viktor Chernomyrdin to discuss ways to improve the investment climate in Russia and increase bilateral trade turnover, and other issues and projects.

The two sides signed an agreement on mutual legal assistance in criminal cases and a memorandum of understanding between the Russian State Committee for the North and the Canadian Ministry of Indian and Northern Affairs on cooperation in the protection of the rights of ethnic minorities.

Chernomyrdin and Chretien also discussed specific projects, such as the development of power engineering in Russia's Far East with participation of Canadian firms, joint

Russian Federation

Politics

Communists Drop No Confidence Motion

· Russian Communist Party leader Gennady ZYUGANOV announced today that the Russian State Duma would not debate a no confidence motion in the government on Wednesday, as planned, in light of concessions promised by the government during a meeting today. Russian President Boris YELTSIN met today with the leaders of parliamentary factions and apparently convinced them to drop the no confidence motion in exchange for meeting their political demands.

After the meeting, ZYUGANOV told reporters that YELTSIN has been cooperative on all issues, including pledging to set up regular roundtable talks with representatives of all major political groups, reported Russian television. The first roundtable will take place on November 22, with the draft Land Code on the agenda.

The opposition said that YELTSIN has also agreed to allocate special time on national television and radio stations for both houses of parliament, and including Duma representatives in the media crews covering the parliament's work. They also agreed that the Duma should publish its own newspaper. YELTSIN has promised to consult with the parliament on a number of other issues, including tax reform, housing reform, land ownership, and compensation for lost savings.

The only faction leader who was dissatisfied with the talks and wanted to go forward with the no confidence motion was Grigory Yavlinsky, leader of the Yabloko faction. YAVLINSKY said the meeting has changed nothing either in the government's policies or in the situation in the country.

Today's News Highlights

Russia

Russia-De Beers Agreement

Krasnoyarsk to Issue Eurobonds

Potential Oil Pipelines Update

English Tea Sales in Russia

ICN Buys Tomsk Drug Co.

South Caucasus & Central Asia

Georgia Wants Compensation

Lebanese Premier in Armenia

Ukraine-Kyrgyz JV

Kazakh-South Korea JV

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October 21, 1997

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gold mining enterprises, and a joint venture between the Canadian company Bombardier and Russian aircraft plants to create new medium-class planes.

Montreal's Bombardier Inc. is a leading contender for a deal to supply 13 executive jets for the president and Russian ministers for about $350 million. France's Dassault Aviation is another contender.

Chretien also raised questions concerning the participation of Canadian capital in the Russian hotel Aerostar.

The two leaders also presided over the signing of a cooperation agreement between Moscow's Vozrozhdeniye bank and the Canadian Imperial Bank of Commerce.

Northern Telecom told Dow Jones today that it has received a $25 million contract from SBS-Agro bank for the implementation of an advanced multimedia network. The project will be financed in part by the Export Development Corp., Canada's export credit agency. Under the terms of the contract, Nortel will supply Canadian-manufactured X.25, Frame Relay, ATM, and advanced voice functionality.

Economy

Ruble = 5,878/$1.00 (NY rate)

Ruble = 5,878/$1.00 (CB rate)

Ruble = 5,857|5,899/$1.00 (buy|sell rates)

Russia, De Beers Finally Sign Agreement

· Russian diamond giant Almazy Rossii-Sakha and South Africa's De Beers today signed a long-awaited trade contract covering the export of Russian uncut diamonds until the end of 1988. The agreement was signed by Almazy president Vyacheslav Shtyrov, De Beers deputy chairman Nicholas Oppenheimer, and Central Selling Organization director Gary Ralfe.

Krasnoyarsk to Issue Eurobonds

· Krasnoyarsk Krai Governor Valery Zubov told Itar-Tass today that the government of the eastern Siberian region plans to issue $400 million worth of Eurobonds with the assistance of CS First Boston Bank. On Monday, President Boris Yeltsin signed a decree allowing the Krasnoyarsk region to offer bonds abroad.

YELTSIN's decree also authorized two other regions—Sverdlovsk and Moscow Oblasts—to issue Eurobonds.

Only three other regions have been allowed to issue Eurobonds: the city of Moscow floated a $500 million Eurobond in May; St. Petersburg made a $300 million offering in June; and Niznhy Novgorod Oblast issued a $100 million Eurobond in September.

Japan to Offer Incentives for Russian Trade

· Japanese Prime Minister Ryutaro Hashimoto will announce next month when he meets Russian President Boris Yeltsin that Japan will relax its trade insurance regulations for Russia in order to encourage trade, reported Kyodo on Monday. Hashimoto and Yeltsin are scheduled to meet in the eastern Siberian city of Krasnoyarsk on November 1-2.

The government has decided, for example, to lower insurance premium rates after revising Russia's country risks. In addition, the Russian government's guarantee of payments for exports, currently required to deal with possible defaults, may be replaced by guarantees by select commercial banks.

An official at Japan's Ministry of International Trade and Industry, which runs the insurance program, told Kyodo that even after these changes the bottom line of the insurance program for Russia should improve, since the Russian economy is about to move out of negative growth.

For its insurance program for Russia, Japan is prepared to offer a coverage of $2.9 billion, or some 350 billion yen, targeted primarily on petroleum, natural gas, and other energy projects. Of that amount, however, only 1.1 billion dollars is currently being used.

Major Japanese trading houses had been calling for a relaxation of the insurance criteria, which they saw as one factor making Japanese firms more reluctant to move into Russia than their European and US counterparts.

Business

ICN Buys Tomsk Drug Plant

· California-based ICN Pharmaceuticals, Inc.,

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announced today that it has acquired the Tomsk Chemical Pharmaceutical Plant in Siberia, bringing to five the number of sales, distribution, and manufacturing plants ICN now owns in Russia, said a company press release. ICN announced earlier this month the acquisition of its fourth Russian drug plant, Marbiopharm of the Volga region. With five Russian companies, ICN now is the leading pharmaceutical company in the country.

Tomsk was founded in 1935 and had sales last year of $33 million. The company has three manufacturing plants and employs 771 workers.

Tomsk was privatized in 1992. ICN bought 75 percent of Tomsk shares, which is subject to approval of the Russian Antimonopoly Committee. Under the agreement with the management of Tomsk, ICN will invest $8 million over the next two years.

ICN also signed an agreement with the government of the Tomsk Oblast. The government approved ICN as the strategic partner of the Tomsk company, while ICN committed to develop and improve production capacities, scientific research, and full employment at the company.

The Tomsk plant makes and distributes a wide range of pharmaceuticals, including antiseptics, analgesics, antibiotics and herbal liquids and extracts. Its assets include a pharmaceutical development group and a pilot plant.

"Tomsk is strategically located in western Siberia and has a distribution network throughout Russia, as well as in Ukraine, Kazakhstan, and Uzbekistan," said Milan Panic, Chairman and CEO of ICN. "This market is one of the largest and fastest growing pharmaceutical markets in the region, and acquiring Tomsk greatly increases our presence in this extremely vital marketplace."

Potential Oil Pipelines Update

· Three major oil companies—US Mobil and Amoco, and French Total—have sent Turkey their commercial proposals concerning the transportation of Caspian oil from Baku to Ceyhan in the Mediterranean, Turkish Minister of Energy and Natural Resources Mustafa Ersumer told Itar-Tass in Ankara today.

Oil experts from Bulgaria, Greece, and Russia have decided to set up a joint committee to design a new oil pipeline from the Bulgarian Black Sea port of Bourgas and the Greek port of Alexandroupolis on the Aegean, the Bulgarian Foreign Ministry told Itar-Tass on Monday. The experts agreed on design plans, opening up prospects for international tenders to attract investments for the project. Monday's arrangements are seen as a constructive step towards the implementation of the project.

The project calls for the transportation of Russian oil across the Black Sea by tankers and further to Greece via Bulgaria by pipeline. This pipeline is also in line to bring Azeri and Kazakh Caspian oil from Novorossiisk to southern Europe. For this reason, the pipeline can be considered a competitor to the Baku-Ceyhan pipeline.

English Tea Cos. Seek to Up Russian Sales

· Britain's Twinings and Tetley International, two of the world's biggest manufacturers of package tea, are looking to increase their sales in Russia, reported Interfax. Twinings marketing manager Andrew VERNEY said Russian tea sales were planned at 250 tons or $10 million, 150 tons more than in 1996. Twinings tea is shipped via the company's exclusive Russian distributor, United Tea & Biscuit.

Tetley International sales manager in Russia Yevgeny PRIMACHYOV said his company aimed to increase tea sales from 300 tons a year (worth $3 million) to 700 tons in 1998. Tetley tea is also distributed by United Tea & Biscuit.

The Russian tea market is estimated at 150,000 tons a year, including 15,000 tons of tea bags, said PRIMACHYOV. However, the market for tea bags is forecast to increase to 17,500 tons a year in 1998 and to 20,000 tons in 1999.

Russia's May tea company has 20 percent of the Russian tea market, selling more than 30,000 tons of tea a year at more than $100 million.

However, Twinings and Tetley do not consider May a competitor, noting that the Russian company has found a niche as a seller of inexpensive tea and cannot compete with Western brand names on superior quality and packaging.

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South Caucasus & Central Asia

Georgia Wants Compensation from Russia

· In his regular weekly radio address Monday, Georgian President Eduard SHEVARDNADZE accused Russia of taking billions of dollars worth of military hardware from Georgia and warned that relations would suffer if Tblisi were not compensated, reported Reuters. The president said that Russia took aircraft, tanks, ships, and other items between 1991 and 1993, when independent Georgia was involved in civil conflicts. "The value of the military aircraft alone was more than $2 billion," he said. "They took everything they could get."

SHEVARDNADZE called the arms transfers "a big injustice" and said that Moscow must correct the situation if it wants to maintain good relations with its strategically placed neighbor. "Russian President Boris YELTSIN understands how important friendship with Georgia is for Russia in the difficult Caucasus region," Reuters cited him as saying.

During negotiations between Georgia and the Russian Defense Ministry last week, Moscow offered to give Tblisi four ships from the Black Sea fleet, but SHEVARDNADZE called the offer insufficient.

SHEVARDNADZE will meet with YELTSIN and other CIS heads of state in Moldova this week for the annual CIS summit. During the summit, SHEVARDNADZE is expected to raise the issue of whether some 1,500 Russian peacekeepers should remain in Abkhazia. At a March 1997 summit, CIS leaders passed a resolution calling for the mandate of the peacekeepers to be broadened to allow Russian peacekeepers farther into the Gali region. Georgia has threatened to ask the peacekeepers to withdraw because this resolution was never implemented.

Lebanese Premier in Armenia

· Lebanese Prime Minister Rafik Hariri arrived in Yerevan today for a one-day visit to boost bilateral ties. Following meetings with Armenian President

Levon Ter-Petrosyan and other officials, Armenia and Lebanon signed an agreement on friendship and cooperation, reported Itar-Tass. The two sides also discussed prospects for economic cooperation in the banking sector, in the area of air transportation, tourism, joint ventures, and mutual investments.

Kazakhstan Delays Move to Akmola

· Kazakh President Nursultan Nazarbayev today signed a decree delaying the official replacement of Almaty with Akmola as the country's capital until December 10, reported Xinhua. Originally, the move was to be complete on October 23.

Kazakh officials are reportedly dreading the move to windy, remote Akmola, located 1,000 km north of Almaty. Some departments and officials have already been moved to the new capital city, but the construction of buildings, housing, and infrastructure is far behind schedule.

Ukraine-Kyrgyz Fake Diamonds JV

· Ukrainian President Leonid Kuchma and his Kyrgyz counterpart Askar Akayev reached an understanding on the formation of a joint venture to produce artificial diamonds during a visit to the Bishkek free economic area, reported Interfax on Monday. Akayev said Ukraine possessed the know-how, the equipment, and the specialists, and Kyrgyzstan had rich reserves of pure graphite.

Kazakh-S. Korean Electronics JV

· South Korea's LG Electronics plans to invest $23.4 million in a project to produce up to 373,000 televisions annually in Kazakhstan, according to a contract signed in Seoul Friday, reported Interfax. The contract, signed by Kazakh First Deputy Prime Minister Akhmetzhan Yesimov and the head of the country's State Committee for Investments, and LG Electronics president Koo Bom Moo, also states that LG will create 300 jobs in Kazakhstan. LG plans to assemble 4,000 televisions at Massaget, a former mine equipment factory in Almaty, in 1998, and to increase output to 373,000 by 2004.

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.

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