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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 3, 1997

Bill CLINTON asking him to impose sanctions against Russia and reassess cooperation programs because of its alleged sale of nuclear technology to Iran, reported RFE/RL. The letter, signed by 96 US senators and congressmen, says there are now substantiated allegations that Russia has been providing Iran with missile technology and technical advice in violation of an international nuclear non-proliferation accord, signed by Russia.

The letter says that these activities pose a direct threat to US security and urges CLINTON to demand that the Russian government stop the activities.

Israel has released a report alleging to have proof that Russian scientific institutes are helping Iran build long-range missiles, but Russia has denied transfering any missile technology or equipment to Iran. However, a Russian Federal Security Service (FSB) official admitted Thursday that Iran had been seeking to develop missiles with help from Russian companies and institutes, but claimed that authorities had "thwarted" the cooperation, reported Itar-Tass.

Chechnya Arrests Alleged Russian Spy

· Chechnya's national security service (NSS) has arrested a Russian Federal Security Service (FSB) major engaged in espionage in the republic, reported Itar-Tass today. NSS first deputy director Lecha Khultygov alleged that Major Vladimir Cherepanov and Grozny resident Ismail Israilov

Russian Federation

Politics

Yeltsin Sends a Challenge to the Duma

· Russian President Boris Yeltsin devoted today's radio address to the nation to criticizing the work of the State Duma and hinted that he may dissolve the legislature, if it is not more cooperative.

The president noted that today is the fourth anniversary of a violent clash between his administration and the hard-line Duma, which resisted YELTSIN's attempt to disband it and barricaded itself into the White House and attempted to take over the country. "The confrontation between the lawmakers and the executive power then led to bloodshed," the Associated Press (AP) cited him as saying.

YELTSIN complained that the Land Code adopted by the legislature is unacceptable because it does not allow the purchase and sale of farmland. He accused the Duma of undermining the country's prestige by its criticism of Moscow's foreign policy. He also criticized the Duma's rejection of a package of social welfare reform laws and its foot dragging on consideration of the 1998 draft budget.

"Judging the Duma's feelings, we'll face a new round of confrontation between the Duma and the executive power," he said. "I've offered them dialogue and accord. But they can't leave their ambitions behind."

YELTSIN then warned lawmakers that he will not brook continued resistance to the reform process for long. "People's patience, the president's patience has its limits. It's too expensive a luxury for people to pay for your irresponsibility."

US Angry about Russia Tech. to Iran

· A group of US legislators has written to President

Today's News Highlights

Russia

Gazprom-Statoil to Cooperate

Ikea to Build Stores in Moscow

Chlorox in Trouble in Russia

European Republics

Belarus Complains

Ukraine to Issue Bonds

BP in Ukraine

US Ambassador to Ukraine

South Caucasus & Central Asia

First Dynasty in Armenia Gold

Politics-Economics-Business

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Friday

October 3, 1997

Intercon's Daily

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

Ruble = 5,866/$1.00 (CB rate)

Ruble = 5,855|5,877/$1.00 (buy|sell rates)

The Vladivostok city administration owes 460 billion rubles to local power companies and has requested money to pay the debts from regional authorities who refuse to help. This conflict between regional and city authorities has been going on for years.

The city Duma suspended Vladivostok Mayor Viktor CHEREPKOV from his duties as mayor last week and tried to replace him with one of his deputies. However, a regional court ruled this week that the Duma did not have the authority to suspend Cherepkov and put Yuri Kopylov in his place.

At the same time, The city administration launched a case against Kopylov in a regional court on Friday, charging him with mishandling 30 billion rubles, said RTR. Cherepkov is currently in the hospital undergoing an unspecified operation and has named his deputy, Nikolai Morkovtsev, to temporarily run the city administration.

Presidential Daughter Creating Image Group?

· Russian President Boris YELTSIN's daughter, Tatyana Dyachenko, appears to be in the process of setting up a new, 10-12 member analytical group in the Kremlin, reported Argumenty i Fakty (No. 40). DYACHENKO was made an official adviser on the president's image in June to the dismay of the opposition. The group's main task will be to devise initiatives to build up the president's image as a tough and resolute politician.

The newspaper points out that a similar group was set up in spring 1996 for the June presidential elections, but it somehow fell apart. The actual creation of a new image group will fuel speculation that YELTSIN will seek a third term in office in the 2000 elections. YELTSIN himself hinted at such a possibility on Thursday.

Economy

De Beers-Russia to Sign Agreement

· Russian diamond producer Almazy Rossii-Sakha and South Africa's De Beers will sign a new trade agreement in Moscow on October 21, an Almazy official told the Prime-Tass on Thursday. The new accord calls for Almazy to sell $550 million worth of diamonds a year through De Beers' Central Selling Organization. The last five-year agreement with De Beers expired in December 1995.

May Jun Jul Aug Sep Oct

planned a spy mission in Chechnya. Criminal cases against Cherepanov and ISRAILOV will be sent to the Sharia court after an investigation is complete.

The FSB denied that Cherepanov was on its staff and stressed that it does not conduct intelligence activities in Chechyna. "This is not the first case of unfounded and provocative inventions of the Chechen side about the Russian security services. In addition, the national security service of Chechnya, with which we have a cooperation agreement, has not presented any official note addressed to us until now," a FSB official is cited by Itar-Tass saying.

Itar-Tass also said that one of its reporters was allowed to interview Cherepanov, who admitted he was a spy. The Major said that he came to Grozny on FSB orders to open an office for a Russian construction firm and get in touch with Israilov, who would provide for his contacts with the "center."

Cherepanov and Israilov allegedly confessed about their spy mission under interrogation.

Local Leaders Blamed for Vlad. Energy Crisis

· A Russian government commission, headed by First Deputy Fuel and Energy Minister Sergei Kiriyenko, has completed its investigation into the energy crisis in the Far Eastern Primorsky Krai. Kiriyenko told reporters in Vladivostok on Thursday that the energy sector in the region is being held hostage by regional authorities unable to solve their budget difficulties, reported Russian television RTR.

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	Friday		October 3, 1997
	Intercon's Daily
	FBI Chief on the Russian Mafia · FBI Director Louis Freeh told the House International Relations Committee on Thursday that Russian organized crime has exploded since the breakup of the Soviet Union and it now poses a real threat to reform in Russia and "imminent dangers" to the US, reported Reuters. "In the US, we have 24 traditional organized crime families and about 2,000 active members of the Cosa Nostra. In Russia, there are between 5,000 and 8,000 groups with 100,000 members," he said. About 30 of those Russian groups were active in other countries, including the US, he added. Freeh cautioned against underestimating the Russia mafia, saying the US had "strong indications" that former Soviet KGB officials were working closely with many of the organized crime groups. Freeh also said the scope of the problem required immediate attention from Washington. "As a result of increased inquiries from FBI field offices and growing cooperation with Russian authorities, we quickly learned that the problem was more extensive than we thought," he said. Business Gazprom, Statoil Plan Joint Oil Exploration · Russian gas monopoly Gazprom and Norway's state oil company Statoil have agreed to undertake joint exploration of the Medynskaya oil field in the Pechora Sea, reported today's Journal of Commerce. The two companies are already cooperating over the Varandei area about 30 km from Medynskaya. Under the new agreement, Statoil will pay 25 percent of exploration costs and Gazprom will cover the rest. IKEA to Build Stores in Moscow · Swedish furniture maker IKEA plans to invest $300-500 million to build four or five retail centers in Moscow, reported Interfax. IKEA President Anders MOBERG told a joint press conference with Moscow Mayor Yuri LUZHKOV that his company had already chosen two sites for IKEA stores. LUZHKOV said he has ordered the Moscow Land Committee and the Moscow Architecture and Construction Committee to seek two or three other appropriate sites. IKEA requires each site to have an area of 20-30 hectares.	The first IKEA in Russia will open in the year 2000. The company also plans to form a joint venture to carry out housing and office developments, said Interfax. Chlorox Charged with Illegal Advertising · Russia's antitrust committee has accused US Chlorox International of violating the country's advertising law in its efforts to sell its bleach on the Russian market and imposed a ban on the product's advertising. Natalya Piankova, a leading expert at the State Anti-Monopoly Committee's advertising control department, told Itar-Tass on Wednesday that the firm has failed to prove that the use of Chlorox bleach "will make your laundry more clean and white without injuring cloth," as the TV ads claim. The ads claim that Chlorox is the "No. 1 bleach in the world." However, the company use as proof of this only that their product has the largest percentage of world sales, said Piankova, adding that the notice "Approved by Russia's Health Ministry" on the bleach's label also ran counter to fact. The product is registered with the Health Ministry, but this doesn't mean it has been approved, she said.
		European Republics Belarus Complains of Treatment by Russia · Belarus state media today was full of complaints and accusations related to Moscow's barring of Belarus President Aleksandr Lukashenko from visiting the Russian cities of Lipetsk and Yaroslavl. LUKASHENKO's plane was denied permission to enter Russian airspace just hours before he was due to leave, reportedly because of his refusal to release Russian public television (ORT) journalist Pavel SHEREMET from custody. The Belarussian press published telegrams of protest sent by Lukashenko to Russian President Boris Yeltsin and the governors of the Lipetsk and Yaroslavl regions, and a note from the Belarus Foreign Ministry to its Russian counterpart. The telegram said that the incident "did not correspond to the relations existing between the presidents of both countries," according to Itar-Tass. "The Belarussian side cannot accept a situation where the visit is directly linked to the demand to


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Friday

October 3, 1997

Intercon's Daily

immediately free Pavel SHEREMET," it said. LUKASHENKO also called on YELTSIN not to allow "dishonest politicians manipulate the presidents of both countries and interfere with their relations."

The official presidential newspaper Sovetskaya Byelorussia wrote that "television magnates and some figures the close to the [Russian] president" were to blame for Lukashenko's inability to visit the two Russian regions, with the result that "influential opponents of the Union of Byelorussia and Russia have scored."

Minsk has insisted that SHEREMET was merely an excuse used by anti-integration forces in Moscow to ruin relations between Russia and Belarus and that, if he were not in custody, another reason would be found to sabotage the relationship.

BP Looking to Invest in Ukraine

· Representatives of British Petroleum met with Ukrainian officials, including Prime Minister Valery Pustovoitenko and State Oil and Gas Committee head Mikhail KOVALKO, to discuss possible investments in the country's oil and gas resources. BP is interested in conducting exploratory drilling in the Dnipro Donetsk region in eastern Ukraine, said the UNIAN news agency. BP estimates that, with sufficient investments, Ukraine could increase annual output of natural gas to 50 billion cubic meters by the year 2010.

Ukraine Planning Samurai Bonds, Eurobond

· The government of Ukraine is planning two international bond issues before the end of this month, seeking to save money by borrowing abroad where interest rates are lower than on the domestic market. It also hopes to capitalize on foreign investors new found appetite for a piece of former Soviet republics. It will place a yen-denominated bond of unspecified volume on the Japanese Samurai market and a dollar-denominated Eurobond for $300- 500 million, said today's Financial Times. Both bond issues are expected to have a maturity of five years.

Ukraine's bond issues will follow successful placements on the international market by Russia and Kazakhstan. "Ukraine has watched how positively investors have responded to the bond issues of Russia and other neighbors and understandably wants a piece of the action," an analyst at one of the leading credit rating agencies told FT.

Ukraine has applied to receive credit ratings from Standard & Poor's, Moody's, and IBCA and expects to be rated by mid-October, reported Reuters. Deutsche Morgan Grenfell and J.P. Morgan were appointed as rating advisors.

New US Ambassador to Ukraine

· US President Bill CLINTON on Thursday announced his nomination of Steven K. PIFER, a career member of the Senior Foreign Service, as US Ambassador to Ukraine, said US Newswire. PIFER completed an assignment as special assistant to the President and Senior Director of the National Security Council staff for Russia, Ukraine, and Eurasian Affairs in August.

PIFER entered the Foreign Service in 1978. In addition to several assignments at the State Department, PIFER has served abroad in Warsaw, Geneva, Moscow, and London. He was Deputy Senior Coordinator for the New Independent States at the State Department before joining the NSC in 1994.

South Caucasus & Central Asia

First Dynasty to Invest in Armenian Gold

· Canada's First Dynasty Mines Ltd. plans to invest $190 million in exploration and production at two gold mines in Armenia, reported Reuters. First Dynasty, the Armenian Trade and Industry Ministry, and state company Armgold have already signed a preliminary agreement on joint exploration of the Zod and Megradzor mines, according to Trade and Industry Minister Garnik NANAGULYAN. He said that five joint ventures would be set up on the basis of that agreement.

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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