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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 24, 1997

Russian Federation

Politics

Russia, Lithuania Improve Ties

· In Moscow today, Russian President Boris YELTSIN and his Lithuanian counterpart Algirdas Brazauskas signed a treaty on the demarcation of the Russo-Lithuanian border and a treaty on the delimitation of the exclusive economic zone and the continental shelf of the Baltic. BRAZAUSKAS, on his first visit to Moscow, will also hold talks on bilateral issues with Prime Minister CHERNOMYRDIN.

The border treaty is an important step toward improving Russian-Lithuanian relations, which have been strained since the breakup of the Soviet Union. YELTSIN has touted his new friendliness with Lithuania and chided Estonia and Latvia for what he calls their uncooperative stance and their poor treatment of ethnic Russians in their countries.

Maskhadov Reshuffles Chechen Government

· Chechen President Aslan Maskhadov undertook a serious government reshuffling today, including firing the head of republic's oil company and restructuring the company, reported Itar-Tass. Maskhadov has issued decrees dismissing Prime Minister Musa Doshukayev, Southern Oil Company (Yunko) president Khozh-Akhmed Yarikhanov, Economics Minister Isa Astamirov, and Chechen air company director Viskhan Shakhabov. He gave no reason for the dismissals.

Another decree split Yunko into three independent companies, making its subsidiaries—production associations Groznensky Orgsintez, Grozneft, and Groznefteprodukt—into separate entities.

Yarikhanov, who negotiated the project to transport Azeri Caspian oil output through Chechnya to

the Russian Black Sea port of Novorossiisk with Russia, said disbanding his company was expected and that he had taken part in talks on the reorganization project.

Primakov Goes to the Middle East

· Russian Foreign Minister Yevgeny Primakov arrived in Lebanon today for the first leg of a week-long Middle East tour that will also bring him to Syria, Israel, Jordan, Egypt, and the Gaza Strip. The visit is a fresh effort by Russia to preserve the Arab-Israeli peace process and Moscow's role in the region.

Primakov is reportedly carrying with him two proposals—to appoint a special Russian envoy to the peace process, with a role similar to US special envoy Dennis Ross and the EU's Miguel Angel Moratinos, and to join the five-nation panel that monitors rules of combat in south Lebanon.

Duma Suspicious of Americans Soros, Jordan

· The Russian State Duma on Thursday asked Interior Minister Anatoly Kulikov to investigate the legitimacy of the business operations in Russia of US citizens George SOROS and Boris JORDAN, reported Interfax. SOROS has given hundreds of millions of dollars to Russia through his Open Society Institute, as well as investing over $2 billion through his investment fund. JORDAN was recently named to head the MFK investment bank, an affiliate of Oneximbank. Both men had a role in the recent sale of a 25 percent stake in Svyazinvest.

Today's News Highlights

Russia

Ruble Chart

Russia-Libya Cooperation

Russia Shares Undervalued

Russia Wants Better Trade Deal

Hughes in Russia Deal

South Caucasus & Central Asia

US 1998 Aid for Caucasus

Eizenstat Testimony - Caucasus

Brownback Testimony

Amoco Exec. Testimony

Politics-Economics-Business

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Friday

October 24, 1997

Intercon's Daily

Ruble = 5,880/$1.00 (NY rate)

Ruble = 5,881/$1.00 (CB rate)

Ruble = 5,859|5,903/$1.00 (buy|sell rates)

Russia Wants US Trade Concessions

· According to Russian deputy trade representative in Washington Vladimir ChibirOv, trade between the US and Russia could triple or more over the next decade, if the US improves its treatment of Russian exports, reported today's Journal of Commerce. Moscow believes that Russia warrants permanent US most-favored-nation trade benefits and should be treated as a free market economy for purposes of US anti-dumping law, he said. CHIBIROV estimated that about 70 percent of Russia's output is produced by the private sector.

Because the US treats Russia as a non-market economy, anti-dumping decisions are made on the basis of prices in other surrogate countries, not on the basis of Russian prices. US anti-dumping duties, he noted, have been imposed on Russian titanium sponge for nearly 30 years and on Russian urea for about 10 years.

ChibirOv likened the US anti-dumping law to a welfare program for uncompetitive US industries. It condemns Russian exporters to "a lifetime of imprisonment" from the US market, he told a meeting of the Russian-American Chamber of Commerce.

US-Russian trade turnover is expected to total about $7 billion this year, about the same as in 1995 and 1996. However, it could reach $20 billion or more by the end of the next decade, said ChibirOv. He suggested that increased exchanges of new technologies between the US and Russia could help spur the bigger trade flows.

Business

Hughes Gets Media-Most Satellite Contract

· Hughes Space and Communications International Inc. said it has been awarded its first telecommunications satellite contract from Russia, said a Hughes press release. The California-based company will build the Bonum-1 satellite for Media-Most, a private Russian media group, headed by Vladimir GUSINSKY. Financial terms were not disclosed.

The satellite will provide coverage of European Russia. When service commences in November 1998, the satellite will provide digital direct-to-home television services across the region. Launch is planned on a Boeing Delta II launch vehicle.

Jun Jul Aug Sep Oct

The Duma suggested that the two men's activities could damage Russia's security. It also is seeking a probe into the appointment of Jordan as head of MFK bank out of concern that he will play a part in "the implementation of military foreign trade projects of the state."

Russia to Step up Cooperation w/Libya

· Russia has signed an agreement with Libya to overhaul a reactor at the Tajura Nuclear Research Center, reported United Press International (UPI) today. Russian officials said that Russia has also offered to build pipelines and power lines in Libya. Moscow maintains it is keeping within the framework of UN sanctions against Libya.

Economy

Russian Shares Grossly Undervalued

· According to Andrei Illarionov, head of the independent Institute for Economic Analysis, shares of Russian companies are still underestimated, accounting for just 20-30 percent of their real long-term price, said Prime-Tass today. However, ILLARIONOV predicted that domestic and international prices for corporate securities will get closer soon.

The Russian economy is getting out of stagnation, said Illarionov. He said the unemployment rate fell from 3.9 percent in January to 3.1 in September, while spending by the population grew by 2.7 percent. He predicted that Russia's gross domestic product (GDP) will grow by 0.2 percent this year.

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	Friday			October 24, 1997
	Intercon's Daily
	MediaMost, which owns stakes in Ekho Moskvy radio, Russian independent television NTV, the Segodnya newspaper, and other media holdings, was formed in January as Russia's first media conglomerate.		EIZENSTAT warned that the US might impose sanctions on a project which will permit Turkey to export gas from Turkmenistan through a pipeline across Iran, if Iran is found to benefit from it. The worry is that Iran will use its investment to develop its own petroleum resources, in which case the US will take action under the 1996 Iran-Libya Sanctions Act. Brownback Testimony on the Caspian · Speaking before the Senate Foreign Relations Subcommittee on Thursday, Senator Sam BROWNBACK cited major elements in proposed legislation which would strategically strengthen US interest in the Caspian region, stressing the urgency of enacting positive pro-active policies. The bill's goals, "...are straightforward: to insure that the nations around the Caspian Basin become strong, independent, economically viable and politically sovereign states," stated BROWNBACK. According to a press release from Senator BROWNBACK's office, the bill to be introduced next week states that US policy in the Caspian region should: promote independence and regional sovereignty, assist in resolution of conflicts; promote economic cooperation by implementing market-oriented principals; develop American business and investment interests; develop infrastructure for modern systems of communications, transportation, and energy; and promote trade on a East-West axis. He stressed the following steps for the US government to help achieve these goals: (1) Linking the countries in the region through East-West pipeline routes will foster cooperation between the countries. (2) Taking a pro-active presence in regional conflict resolution will help create stability in the area. The Abkhazia and Karabakh conflicts are the main problems. (3) Assisting in the promotion of reforms which will strengthen economic independence, foreign investment, and press freedom. (4) Encouraging Russia to implement a more positive presence. For example, recently Russian border troops have delayed cargo traffic through Georgia creating backlogs which damage not only the cargo but Georgia's reputation as a transit country. (5) Further assisting Georgia and other countries in implementing custom and border guard requirements, will help these countries secure their sovereignty.
		South Caucasus & Central Asia US Congress Decides on Caucasus Aid · It appears that agreement has been obtained in the Foreign Operations conference of Appropriations Committees on the 1998 foreign aid bill to allocate $250 million to the Southern Caucasus Region. Of the total, 35 percent will go to Georgia, with assistance for border guards and customs posts a priority, 33 percent will go to Armenia, and 32 percent will go for the reconstruction and remedial activities in the conflict zones of Abkhazia and Nagorno-Karabakh. The funds for the Caucacus conflict zones includes money for humanitarian assistance for refugees, displaced persons, and needy civilians affected by the conflicts. Azerbaijan is not allowed to receive US aid under section 907 of the Freedom Support Act of 1992, which governs aid to the NIS. Eizenstat Testimony on the Caspian · US Undersecretary of State Stuart EIZENSTAT told the Senate Foreign Relations Subcommittee on International and Economic Policy and Trade Promotion on Thursday that the first-phase of an agreement between Armenia and Azerbaijan regarding Karabakh may be completed as early as this year, reported Reuters. The US, along with France and Russia, have been working to coordinate a proposal to end the conflict under the auspices of the Organization for Security and Cooperation in Europe (OSCE). The proposal agreed on last May would have Azerbaijan grant a high degree of autonomy to Karabakh and Armenia would formally recognize the territorial integrity of Azerbaijan. EIZENSTAT also supported the development of a legal regime in the Caspian Sea to resolve conflicts on sovereignty and property rights. He also encouraged the US government to help its companies compete for a presence in energy deals in the region.


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Politics-Economics-Business					Page

Friday

October 24, 1997

Intercon's Daily

Last year, $15 million of Cooperative Threat Reduction (CTR) funds were authorized to provide assistance to customs and border guard officials in the independent states of the former Soviet Union, such as Azerbaijan, Armenia, Georgia, the Baltic states, and other countries in Eastern Europe. However, this appropriation was never expended. This year's authorization bill also includes this $15 million in CTR funds for international border security and directs the Pentagon to spend the money for these purposes.

BROWNBACK's testimony suggests that implementation of this program would be a key way to promote US interests in the region.

Amoco Testimony on the Caspian

· Amoco Eurasia Petroleum Corp. president and chairman Charles Pitman told a Congressional subcommittee on Thursday that the US government must continue to increase its involvement in the strategically and commercially important Caspian Sea region and recommended specific steps the government could take to enhance US business investment in the Caspian, as well as assist in solving regional issues and conflicts, according to an Amoco press release.

In testimony before the Senate Foreign Relations Subcommittee, PITMAN said Amoco recommends four steps for the US government: (1) Repeal Section 907 of the Freedom Support Act: (2) Support efforts to establish a commercially viable and secure main export pipeline to carry Caspian oil to western markets; (3) Work to resolve regional conflicts; and (4) Encourage resolution of the legal status of the Caspian in a way that protects private investment.

Pitman called for a "repeal of Section 907 of the Freedom Support Act and a policy that encourages the earliest possible development and shipment of oil from the Caspian Sea region to western markets."

The Caspian region holds an estimated 100-200 billion barrels of oil. Amoco is one of the largest US

investors in the region, with several exploration and production projects in Azerbaijan and Kazakhstan.

"Over the last twenty years, it has become clear that the United States, as a consumer, has a national interest in developing diversified sources of energy," said Pitman. "We believe that oil from the Caspian basin offers the US a prime opportunity for diversification."

Global competition is intense in the region, according to Pitman. "US companies have been most competitive when US policy toward Azerbaijan has been most engaged or supportive. Conversely, US companies have been least competitive when the Azeris have perceived US policy to be unfair and disengaged," he said.

Section 907 of the Freedom Support Act is an example of the US government exerting "negative influence" in the region, said Pitman. Amoco concurs with a Clinton Administration report issued earlier this year that found Section 907 hinders US policy objectives in the region and puts US businesses at a disadvantage, Pitman stated.

The US government could also assist regional development and stability by supporting efforts to build a commercially viable and secure main export pipeline to carry Caspian oil to western markets.

Amoco prefers the Turkish route, which runs from Baku to Ceyhan on the Mediterranean coast "if it is made commercially viable," Pitman pointed out. "In short, it's twice as long as the Georgian route and, therefore, it costs twice as much."

"Mr. Chairman, I encourage you, and the Administration, to promote the strategic interests of the US by helping make the Baku-Ceyhan route economically feasible," said Pitman. "We urge US officials to work with their Turkish counterparts to find means to narrow the financial gap between the Turkish option and other options. We are prepared to cooperate in this endeavor."

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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