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

Thursday, October 9, 1997

Russian Federation

Politics

Yeltsin Says He Will Not Run Again

· Speaking to reporters upon his arrival in Strasbourg for the Council of Europe summit today, Russian President Boris YELTSIN said he will not seek a third term in office in the 2000 presidential elections. "I will not run for a third term and because of that will not change the constitution. When my two terms are up, there will be a new, spirited, energetic democrat" in my place, he is quoted by Dow Jones as saying.

Today's statement represents the second reversal on the possibility of YELTSIN running in 2000. Last week, YELTSIN hinted that he may seek a third term and his spokesman suggested that the constitution could accommodate such a situation. Last month, he stated categorically that he would not run again in order to allow a younger man to take over.

Strobe Talbott Visits Moscow

· US Deputy Secretary of State Strobe Talbott arrived in Moscow on Wednesday for talks with Foreign Minister Yevgeny PRIMAKOV and other officials on strategic arms control. He met with Russian State Duma speaker Gennady Seleznyev to discuss the parliament's view on the ratification of strategic weapons reduction treaties.

The Russian speaker told TALBOTT that the START-2 Treaty could have been ratified by the Duma during its last session, if the issue of NATO eastward expansion had not arisen. "It will be possible to raise a question of ratification of this Treaty for the consideration by the State Duma after it would become clear from experts' conclusions that this process does not pose a threat to Russia's security," he is quoted by Itar-Tass saying.

Yeltsin Replaces Representative to Chechnya

· Russian President Boris Yeltsin on Wednesday removed Security Council Secretary Ivan Rybkin as presidential envoy to Chechnya, replacing him with RYBKIN's deputy Valentin Vlasov. There is no indication that RYBKIN will lose his position as head of the Security Council.

According to today's Nezavisimaya Gazeta, the decision on the personnel change was made during talks between YELTSIN and RYBKIN on September 29. RYBKIN has been expressing opinions on policy toward Chechnya that varied from Moscow's official line for some time. His removal, however, was apparently linked to the recent expulsion from Chechnya of the entire Russian mission, said NG.

Last week, Chechnya's vice president ordered 80 Russian representatives to leave Chechnya after his plane was denied clearance to enter Russian airspace for a trip to Baku.

Economy

Ruble = 5,870.55/$1.00 (NY rate)

Ruble = 5,770/$1.00 (CB rate)

Ruble = 5,865|5,895/$1.00 (buy|sell rates)

Russia and De Beers Initial Accord

· Representatives of Russian diamond producer Almazy-Rossii Sakha and South Africa's De Beers on Wednesday initialed the text of a five-year marketing agreement, due to be signed

Today's News Highlights

Russia

Small Businesses Discuss Crime

S&P's Rates Mosenergo

Canada Co. in Sakhalin Deal

Ericsson to Expand in Russia

European Republics

US Firm in Ukraine Bank Order

Ukraine May Up Import Duties

South Caucasus & Central Asia

Metromedia in Georgia

Chernomyrdin in Bishkek

Politics-Economics-Business

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Thursday

October 9, 1997

Intercon's Daily

on October 21, reported Interfax. The two sides met in Moscow for six hours to iron out the final details of the agreement. The agreement calls for Russia to export at least $550 million worth of raw diamonds through De Beers annually.

In related news, Almazy has increased its charter capital to a little over 2.7 trillion rubles ($460 million) by increasing the par value of its shares, said a company press release. A company spokesman said the increase was necessary to attract investments in company projects.

Small Business to Combat Crime

· Russia's Coordinating Council, which protects the rights of small and medium businesses, on Wednesday proposed that the Russian president create a council to coordinate a combined crackdown on crime, reported Itar-Tass. According to Sergei Roganov, the president of the Technologies 21st Century foundation which participates in the Coordinating Council, over 40,000 small and medium businesses are mafia-controlled and two-thirds of traders are connected with criminals.

Roganov estimated monthly losses caused by the corruption of government officials who monitor trade and small- and medium-sized businesses at half a billion dollars.

Council members said both business people and the emerging middle class were concerned with the growing penetration of criminals into government, especially in the Russian provinces. The general consensus was that the existing system of taxation, licensing, and registration prompted nearly all entrepreneurs to break the law.

Russia's small businesses produce about 10 percent of GDP and bring in 12-14 percent of revenues from the sale of goods and services. The sector feeds nearly 45 million Russians.

Business

S&P's Rates Mosenergo Utility

· Standard & Poor's on Wednesday assigned its double-'B'-minus long-term foreign currency rating to Mosenergo Finance B.V.'s Eurobond notes, said S&P's CreditWire. The issue is guaranteed by Russian regional utility Mosenergo.

On June 16, 1997, Standard & Poor's assigned a double-'B'-minus corporate credit rating to Mosenergo. The rating reflects Mosenergo's stable operations as the monopoly distributor of electricity and district heating in the City of Moscow and the Moscow Region, its sound generation business, and strong financial profile. The rating also incorporates the company's integration in the rather weak federal electricity industry, the uncertainties arising from a somewhat unstructured regulatory framework and the considerable financial pressures arising from collection problems.

Mosenergo's rating is constrained by the foreign currency rating of Russia and is also affected by general Russian operating risks and adverse business conditions in the electricity wholesale market.

Mosenergo is the largest of 72 vertically integrated regional utilities operating in Russia. The company is 49 percent owned by Unified Energy Systems of Russia (UES), which in turn is 53 percent owned by the state. UES owns a similar stake in most of the regional utilities and acts as the central cog of the federal unified electricity system.

Mosenergo is one of the strongest regional utilities in Russia in terms of both operational performance and financial profile. The company's service area is one of the most diversified in the country and the revenue base is expected to remain robust, despite the decline in industrial electricity consumption.

The district heating business accounts for about 30 percent of Mosenergo's total revenues and cash-flow. No competition is expected either in electricity or heat distribution over the medium term. Generation is largely gas-fired and installed capacity currently exceeds demand in the service area.

Mosenergo is virtually debt-free and the company's profitability and cash-flow margins are strong. Some debt will be taken in coming years, though leverage is expected to remain modest for this rating category. Like many other companies in the Russian Federation, Mosenergo is burdened by collection difficulties. The problem, however, is largely because late payment from federal and municipal entities rather than to non payment from private institutions. Mosenergo also has some room to net these bills with accounts payable to municipal entities.

When you need to know it as it happens

Politics-Economics-Business

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Thursday

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Intercon's Daily

Canada Co. Sells Housing in Sakhalin

· Canada's Royal Group Technologies Ltd. announced on Wednesday that it has received an order for the supply of components of The Royal Building System to Russia's far eastern Sakhalin Island, said a company press release. The System will be used to construct 800 housing units for victims of a recent earthquake which hit the area.

The contract, which is worth about $22 million to Royal, will be manufactured in Royal's Building System plant located in Ontario, Canada, and shipped to the island of Sakhalin, where local contractors will construct the housing units.

Canada's Economic Development Corp. is participating in the financing of the project.

Ericsson Business Up in Russia

· Swedish telecommunications company LM Ericsson Telefon plans to increase its turnover in Russia from this year's expected $350 million to $850 million in the year 2000. "Our forecasts show that we will have a turnover of $850 million in the year 2000, but I wouldn't be surprised if we reach one billion dollars," Yngve Redling, CEO of Ericsson's Russian subsidiary, is quoted by Xinhua as saying.

Ericsson has decided to build a second factory in Russia this year, he said. Ericsson's first factory in Russia, an AXE exchange production plant, is scheduled to start operation on January 1, 1998.

The company will also increase its offices in Russia from eight to 15 next year, its workforce from 350 to 600, and its joint ventures from five to eight.

Ericsson now takes about 50 percent of the mobile telephone market in Russia.

First Ukrainian International Bank uses ARKSYS' ATM Management to issue cards to employees of the region's large number of steel mills and mining workers and will distribute payrolls through ATMs.

First Ukrainian International Bank is one of the 10 largest Ukrainian banks. Fifty percent of FUIB's shares are owned by foreign investors, including 20 percent ownership by MEES PIERSON, N.V., the Netherlands. In addition to globalized banking, FUIB utilizes an independent satellite-based communications system to serve their growing customer base.

Ukraine May Raise Import Duties

· The Ukrainian government is considering an increase in import duties on consumer goods by 2-2.5 percent to protect the country's ailing light industry, reported Xinhua. Addressing the parliament on Tuesday, Ukraine's Industrial Policy Minister Vasyl Gureev described the light industry situation as critical. He said the production of consumer goods in 1996 was only 16 percent of that in 1990.

Under a program to boost light industry production, the government had pledged to spend 11.3 million hryvnias ($6.1 million) on renovating the sector in 1996 and 55.9 million hryvnias ($30 million) this year. However, the sector received only 510,000 hryvnias ($276,000) in 1996 and none in 1997.

As a result, foreign-made products, including toilet paper, napkins, sausage, cheese, and many other daily necessities, flooded the Ukrainian market, said the minister.

Upcoming Events

First International Caspian

Infrastructure Exhibition and Conference

October 21-24, 1997

Baku, Azerbaijan

Organized by: Spearhead Exhibitions Ltd.

in partnership with the Azerbaijan Chamber of

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Tel: 44 (0)181-949 9222;

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European Republics

US Firm Gets Ukraine Bank Order

· US ARKSYS announced on Tuesday an agreement with First Ukrainian International Bank of Donetsk in eastern Ukraine, to provide an electronic payroll solution that enables the region's industries to pay employees through ATM technology, said a company press release. ARKSYS' Ukrainian distributor, Systems Integration, Ltd., participated in development of the relationship.

When you need to know it as it happens

Politics-Economics-Business

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Thursday

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Intercon's Daily

In another move aimed at reinvigorating the sector, the government and the central bank may offer long-term credit to domestic enterprises on preferential terms, he said.

State of Ukrainian Economy

· The Ukrainian Statistics Committee said on Tuesday that the decline in industrial production has slowed down, reported Itar-Tass. Industrial output fell six percent in the first quarter of 1997, compared with the first quarter of 1996. The decrease during the first half of this year was 4.5 percent, and the decline during January-September was 2.4 percent.

South Caucasus & Central Asia

Metromedia Begins Service in Georgia

· Metromedia International Telecommunications Inc. (MITI), a wholly owned subsidiary of Stamford, Conn.-based Metromedia International Group Inc., announced on Wednesday that its Georgian GSM cellular telephone joint venture, Magticom GSM, launched service in Tblisi on September 22, said a company press release. Magticom GSM was awarded a license in July 1996 to operate a nationwide GSM 900 mHZ band service in Georgia.

The company plans to have all major Georgian cities served by GSM cell sites by the end of 1997. Additional cell sites in smaller cities and rural areas will be added by 1998.

"We are very pleased with the success and customer reaction thus far," Richard SHERWIN, president and CEO of MITI, is quoted as saying. "Within the first two weeks over 2,000 subscribers have signed up."

MITI operates cable television, paging, and international toll calling ventures in Georgia. MITI's investment in Georgia currently exceeds $20 million.

Magticom GSM is a joint venture between Telcell Wireless and two private Georgian companies, Magti Ltd., and G-Com Ltd. Telcell Wireless is a limited

liability company formed by MITI and Western Wireless Intl., a subsidiary of Western Wireless Corp..

Russian Prime Minister in Kyrgyzstan

· Russian Prime Minister Viktor Chernomyrdin arrived in Bishkek today for a two-day working visit to hold bilateral talks with Kyrgyz officials and to participate in the work of a session of the Council of the CIS heads of government.

Addressing the Council meeting today, the Russian prime minister called for closer cooperation toward economic integration within the CIS.

During the meeting, the heads of state signed 24 documents on economic cooperation covering areas including transport policy, railways, and customs, reported Reuters. The CIS will hold a full-scale summit in Kishinev on October 23.

Chernomyrdin was also expected to hold talks with Kyrgyz president Askar Akayev on Friday.

Kazakh to Sell Electricity Cos.

· The Kazakh state property department said Tuesday that it will hold a tender for two electricity distribution companies—Altaienergo and Semipalatinskiye Raspredelitelnye Elektroseti (SRE), reported Reuters. Bids for the companies will be accepted until November 3.

The winner is obligated to ensure the companies keep running and to clear their debts, which include money owed to other companies and the budget as well as arrears to workers. The winner must also attract needed investment.

AES SunTree Power, a joint venture between US AES Corp. and Israel's SunTree Power, is likely to bid for the companies, sources told Reuters. AES SunTree has already won contracts to buy four power plants and run two others.

Daily Report on Russia & the FSU will not be published

on Monday, October 13, in observance of Columbus Day.

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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