DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL, USA, 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

Tuesday, November 4, 1997

Russian Federation

Politics

Duma Commission on Sell-offs Continues

· The Russia State Duma's commission probing into sell-offs of Russia's industrial giants with large federal stakes will continue its work until December 10, reported Itar-Tass. Initially, the commission was to complete investigations into circumstances of the privatization of the major telecoms holding Svyazinvest, the world's largest nickel producer Norilski Nikel and Tyumen and Sibneft oil companies by November 1.

According to the procedure, the Duma's privatization watchdog will hold four sessions to work out draft parliament resolutions and a final report summing up its efforts. Chairman Valery Vorotnikov said the report will also call for improvements of Russian laws governing the organization and holding of auctions for the sale of federal stakes in privatized businesses.

Russia to Propose G-8 Agenda

· For the first time the G-8 countries will discuss an agenda proposed by Russia when they meet in Birmingham, Britain, in 1998, reported Itar-Tass. Presidential Deputy Chief Alexander Livshits stressed that Russia will participate in the summit as an equal member. He said that Moscow will not include a special section on Russia as no section exists for any other country. Last week, Livshits participated in a meeting of the G-8 top advisers in Washington.

Britain-Russian Military Cooperation

· · British Defence Secretary George Robertson arrived in Moscow today for meetings with Defence Minister Igor Sergeyev, Foreign Minister Yevgeny Primakov and Defence Council secretary Andrei Kokoshin focusing on ways to strengthen Russian-British military contacts, reported Itar-Tass.

Robertson and top officials discussed an offer to develop military cooperation, including supporting Russia as a greater role in U.N. and NATO peacekeeping operations, creating a Russian-British coordination military commission for developing and modernizing Russia's armed forces, and establishing a direct telephone communications link between them in case of emergency.

Economy

Ruble = 5,796/$1.00 (NY rate)

Ruble = 5,889/$1.00 (CB rate)

Ruble = 5,874|5,904/$1.00 (buy|sell rates)

IFC Investment Index to Include Russia

· The International Financial Corporation's (IFC) consolidated investment index has increased Russia's weighting to 5.5 percent from of the index. The fact that Russia is included in the index will stimulate FDI in Russia. Russia is the sixth out of 25 on the list, after South Africa, Mexico, Brazil, Malaysia and Taiwan.

The share of Russian companies in the new index is 5.14 percent more than was expected before, said IFC staff member Irina Kulish. These companies are mostly working in the power or telecommunications sector, but they also include Sberbank, the GAZ automobile-making works and the GUM trade house.

Moody's and S&P to Rate Russia

· Experts from the international rating agency IBCA arrived in Moscow today, with a group from Moody's and

Today's News Highlights

Russia

Russian Banks to open in India

Rus-Turkish Sea Pipeline

European Republics

Ukraine GDP Decline Slows

EU Objectivity on Lithuania?

South Caucasus & Central Asia

CanArgo raises Funds

US-Uzbekistan Military Co-op

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Tuesday

November 4, 1997

Intercon's Daily

Standard & Poor's to monitor the Russian economy. INTERCON sources indicate that S&P will upgrade Russia from BB- to BB or BB+. Moody's may upgrade from BA 2 to BA 1. This comes on the heals of the IFC decision to increase Russia's waiting for their composite investment index from 2.9 percent to 5.5 percent. This could result in an addition $700 million investment into Russia within the next seven to eight months. Russia's ratings class is grouped with Argentine, Brazil, and Venezuela.

Business

Russian Steelmaker Make Peace

· The fight for control of Novolipetsk Metal Kombinat (NLMK), the second largest steel mill in Russia with modern equipment, may be coming to an end as the Soviet-era directors and outside shareholders find common ground, reported Financial Times. "A consensus between management and the shareholders has been found. I can not say anything more," stated the plant's press secretary.

Vladimir LISIN, a major player in this power-struggle and director of the board, severed ties with Trans-World Group (TWG) by halting their metal deliveries claiming the company owed the plant $220 million. LISIN now is backing the shareholders that include Cambridge Capital Management Fund. Referring to his recent switch from TWG to shareholders, LISIN said, "We have differences concerning how the enterprise should be managed, and investment planned for the future." TWG has a 35 percent holding in the company and it is unconfirmed whether LISIN holds 11 or 14 percent.

Rolls Royce Supplies Jets to Russia

· Rolls Royce along with Tupolev's Aviation Research Complex will be producing 12 passenger and one cargo Tu-204 aircraft for the Ulyanovsk-based aircraft-maker Aviastar producing the planes. The agreement between Britain's Rolls Royce and Tupolev's Aviation Research Complex provides that the aircraft be delivered before the middle of the year.

Tupolev's general manager, Igor Shevchuk said that Rolls Royce, "believes in the Tu-204-120 program and for this reason is ready to participate in the joint project most actively." The medium-range liner Tu-204-120 can carry 210 passengers and is considered to be the most efficient aircraft of its kind.

Russia-Turkey Black Sea Pipeline

· · Russian gas monopoly Gazprom has started a projects to build a gas pipeline to Turkey, reported Itar-Tass. Gazprom chairman Rem Vyakhirev said on Monday that the project "Blue Stream" calls for building a 1,213 kilometers pipeline from the Russian settlement Izobilnoye, Stavropol region, to Ankara, Turkey. He said that 396 kilometers will run along the floor of the Black Sea, 373 kilometers will pass on Russian territory, and 444 kilometers in Turkey.

The route was chosen because, "it is not linked with any transit transportations across several states. Only two sides are involved in this case the supplier and the recipient, said VYAKHIREV.

The first gas will flow through the pipeline in April 2000. The Italian company Sajpem and the Dutch company Allseas are the two companies bidding for the contract to build the sea pipeline.

Gazprom Gets Loan Against French Contracts

· Russian gas monopoly Gazprom Chairman Rem Vyakhirev today announced it will sign a $3 billion loan with Credit Lyonnais, reported Financial Times. The loan is secured against revenues Gazprom will receive from supply contracts with Gaz de France. Having Citibank among the underwriters suggests that US banks have not been deterred from doing business with Gazprom despite the US government disapproval of the Gazprom's deals with Iran.

Gazprom will receive the loan to build a network of pipelines from Siberian Yamal to western Europe, which will involve Gazprom partners in the Commonwealth of Independent States, Western and Eastern Europe. The construction of the first branch of the pipeline is to be completed in 1999-2000.

Russian Banks to Open in India

· The Income Bank of Russia (IBR) and another commercial bank will obtain licenses to open full-fledged branches in India, a government official told Xinhua today in New Delhi. IBR already operates an office in India and now will be permitted to upgrade its status in New Delhi to a subsidiary. Russia agreed to provide licenses to two Indian banks to open subsidiaries in Moscow, as banking facilities are a major obstacle in the two countries economic relations.

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Tuesday

November 4, 1997

Intercon's Daily

European Republics

Hopes for an End to Ukraine-Russian Trade Wars

· Ukrainian President Leonid Kuchma on Saturday held out the hope that his meeting with Russian leader Boris Yeltsin in mid November would end the trade war between the two countries, reported Itar-Tass. In his view, the Ukrainian-Russian agreement on cooperation for the next ten years, which is being drawn, "will have a positive influence on all levels of relations between our states."

Cooperation in several areas is to be discussed primarily commercial structures and banks as well as and joint ventures in science, aircraft industry, mechanical engineering and aerospace. Kuchma emphasized that the document will have "not just slogans but concrete scientific programs and directions."

Lithuanians Displeased With EU Objectivity

· European Commission President Jacques Santer arrived in Lithuania Monday and was unable to convince the Lithuanian leadership of the Commission's objectivity in not recommending to open talks with Lithuania on membership in the EU, reported RFE/RL Newsline. He said Lithuania had progressed in creating the market economy, but the European Commission also noted that Vilnius was not fully prepared to resist competition pressure within the EU market and that its legislative branch was not up to EU standards.

Lithuania President Algirdas BRAZAUSKAS said he tried to convince SANTER there are no major difference between the Baltic States. "We live in a single political space, and it is unclear to me when we were made separate," he said.

From Lithuania SANTER will continue on to Tallinn, Estonia where he will meet with top government officials to discuss Estonia's readiness to be integrated into the European Union and other European organizations. Estonia, unlike Latvia and Lithuania, was one of five eastern states chosen for early talks in EU enlargement.

Ukraine GDP Decline Slows

· State Statistics Committee figures released Monday show Ukraine's GDP, industrial and agricultural production decline slowed down in the last few months, reported Itar-Tass. In the period January-September, industrial production reached $28 billion. The fuel and metal sectors both improved. Production declined in machine-building and light industry was four times smaller than the same period last year. The production of food shrank by almost 14 percent, building materials by 10.3 percent.

South Caucasus & Central Asia

CanArgo Raises Funds

· Canada's CanArgo Energy Inc. announced Monday that it completed a $4.5 million private placement financing through its agent CrediFinance Securities Limited, with net proceeds of $4.1 million to the Company, reported Canadian Corp News. The proceeds of the placement will be used by CanArgo to develop its oil and gas assets in Georgia.

Azeri-Turkish Cooperative Protocol on Security

· In Baku, Azerbaijan Interior Minister Ramil USUBOV and his Turkish counterpart Murat BASESKIOGLU signed a protocol to cooperate in the areas of security, organized crime, drug trafficking and weapons contraband, reported Itar-Tass. BASESKIOGLU expressed the importance of working with Azerbaijan to fight international terrorism.

US- Uzbekistan Military Cooperation

· The US is increasing military cooperation with Uzbekistan to prevent further instability in the region of Central Asia, reported Itar-Tass today. The first meeting of the Joint Commission is to be held in December. The commission will discuss military cooperation and US assistance in the republic's effort to switch its defense enterprises to civilian and continue the American program for training Uzbek officers. Uzbek Foreign Minister Abdulaziz Kamilov said his country is interested in setting up a center for maintenance of aircraft on the basis of its large military aircraft assembly plant.

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Jennifer M. Rhodes, Principal 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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