WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Thursday, November 6, 1997

Russian Federation


Luzhkov Vetoes Moscow Land Sale Law

· Moscow Mayor Yuri LUZHKOV on Wednesday vetoed a city law on the sale of land to investors in the construction or renovation of buildings in the Russian capital, reported Itar-Tass. The city parliament failed to overturn the mayor's veto. Adopting this law would be premature as Russia's Land Code has not passed through the federal parliament, LUZHKOV said. Russia's Main Law states the use of land, including its sale, is to be federally governed. Some areas in Moscow are owned by the state, but no formal distinction has been made between federal and municipal property in Moscow, which is not reflected in the law.


Ruble = 5,890/$1.00 (NY rate)

Ruble = 5,892/$1.00 (CB rate)

Ruble = 5,877|5,907/$1.00 (buy|sell rates)

Russian Military Shipyard Converts

· Amur Shipbuilding Plant five years ago built nuclear submarines for the Soviet Union. When the government failed to pay for delivered vessels and canceled all of its orders, Amur General Director Pavel BELY knew the shipyard must adjust with the changing tides by seeking offshore oil work instead of defense contracts. Amur Shipbuilding Plant redeveloped to produce oil equipment, such as a huge steel platform measuring 1,200 sq.ft. for a foreign oil consortium valued at $35 million. The shipyard gained such a contract because of production agreements signed with the Russian government requiring foreign investors to source 70 percent of their materials locally to help revive the economy. David LORAN a regional manager for the consortium praised the workers on their project for Sakhalin Energy . "There are a lot of people in the world who believe Russians cannot

deliver this type of project. But they finished within the budget and a month ahead of schedule. The quality of the work was outstanding," he told Financial Times.

Nemstov Plans a Middle Class for Russia

· First Deputy Prime Minister NEMSTOV announced Wednesday that forming a middle class for Russia will be a priority for the government and State Committee on Support and Development of Small Businesses, reported RFE/RL Newsline. NEMSTOV said that small to medium sized businesses employ 12 million citizens, which he hopes will increase to 30-40 million. By increasing the number of citizen working for small businesses, NEMSTOV believes this will help form a middle class. Small businesses account for 12 percent of Russia's GDP, which is more than gas monopoly GAZPROM, he also noted.

Russian Steelmaker Applies for EBRD Loan

· Magnitogorsk Metallurgical Kombinat, Russia's third largest steelmaker, signed up for the first ever loan from European Bank for Reconstruction and Development to the Russian steel sector for modernization plans, reported The Journal of Commerce .

The loan is expected to grow from $95 million to $105 million with Tokobank and Inkombank each providing $5 million. Tokobank's credit department head Valery KATORZHNOV said it was unlikely that the loan would be affected by protectionist moves and export limits proposed by US steelmakers. The International Trade Commission agreed to rule on the import complaints Dec 1, 1997.

Today's News Highlights


Russian Crime Rate Declines

Russian-Turkish Pipeline

G&D America Inc. in Russia

European Republics

Ukrainian Privatization Control?

Ukraine Airlines Strike

Lithuania Amends Civil Code

South Caucasus & Central Asia

Tashkent Gold Gains Status

Caterpillar Inc. in Baku




November 6, 1997

Intercon's Daily


Russia's Crime Rate Down

· Russian Interior Minister Anatoly KULIKOV told Itar-Tass today that Russia's crime rate declined during the first nine months of 1997 and stands at 1,800,000 committed crimes, a drop of nine percent, compared with the same period in 1996. "The number of murders committed in the country this year has declined by 2.6 percent and the number of cases of causing grave harm to health of victims has fallen by 15 percent," KULIKOV asserted. He also claimed that solving serious crimes is on the rise and the rate of solving murder cases has risen by 80.7 percent. However he failed to indicate what the 80 percent referred. Foreign Minister Yevgeny PRIMAKOV commented on the Western interpretation of Russian crime by stating, "Yes we have corruption and crime, but we are fighting them. The President sets us about fighting them by his decrees and instructions. But the scale of corruption and crime is nowhere near what Western mass media claim." The current monthly flight of capital from Russia is more than $1 billion. KULIKOV spoke of the lack of laws related money laundering and corruption. He said, "The criminalization of the economy impedes reforms and scares away investor. As a result the budget does not receive [its] possible revenues."

Russian-Turkish Pipeline

· Turkish State Minister Ahat ANDICAN on Tuesday offered Russia the use of a pipeline to link Baku and Chehan for the transportation of its oil to world markets, reported Itar-Tass. ANDICAN believes that Ankara has a greater chances of implementing the project of pumping Azeri and Kazakhstan oil to the Chehan petroleum complex on Turkey's Mediterranean coast. ANDICAN stated that Shell and Amoco are ready to participate in the oil pipeline's construction. Mobil and Total corporations had earlier made commercial proposals to Turkey. The cost of the project is estimated at $2 billion. Turkish President Suleiman DEMIREL and Prime Minister Mesut YILMAZ will visit Baku in December concerning the pipeline.

G&D America Inc. in Perm and Moscow

· Reston, VA based Giesecke & Devrient America Inc. (G&D America) announced Wednesday its

parent company, Munich-based Giesecke & Devrient GmbH, has supplied equipment and project management for the production of high-grade memory chip

cards to its long-term strategic partner Goznak PPFG of Perm, Russia, said a company press release. Goznak PPFG, a state-owned banknote printing works, is the sole producer of banknote and security paper and identification systems in Russia. The new chip card production capability will broaden Goznak's product spectrum allowing the company to manufacture eight million prepaid telephone cards for the rapidly expanding Russian telecommunications market. The company also has plans to produce smart cards for GSM mobile phone applications and for electronic payment systems with an annual production capacity for all chip cards anticipated to reach 10 million cards.

"The opportunity to use our partner Goznak's production potential in Perm lets us combine low-cost, local production with our expertise in high-tech smart card applications. In this way we can offer our Russian customers a comprehensive product spectrum of international standard. Local production lets us speed delivery, putting us in the best possible position to meet the growing demand for smart cards in Russia and Eastern Europe," commented Jurgen NEHLS, member of Giesecke & Devrient's board of directors and head of its Cards and Card Systems Division.

European Republics

Ukrainian Privatization Control?

· Ukraine's privatization program is ready to go forward, but a major obstacle stands in its way: who has the power to control the process. The Ukrainian Parliament's attitude of anti-reform and stalling resolutions have continually attempted to stall the privatization process. The Parliaments still has not approved Volodimir LANONVIY, temporary head of the Ukrainian State Property Fund, appointed by President KUCHMA in March. Regarding attacks from the Parliament on the privatization program LANONVIY said, "We will never change our privatization plans and we have all the laws needed for that in place," reported RFE/RL Newsline.

The government's fiscal problems are compounded by the lack of cash reserves to pay government worker's arrears and the troubled relationship with the International Monetary Fund. The IMF may dry up credits from multilateral development institutions, which were Ukraine's largest source of foreign capital inflow, reported Financial Times. The Ukraine's account deficit is estimated at $1 billion per year. Ex


When you need to know it as it happens



November 6, 1997

Intercon's Daily

perts speculate that the only way out for the government is to privatize. LANOVIY plans to privatize 47 large enterprises, including car manufactures and electric power stations.

US foreign aid package to the Ukraine of $225 million, which is pending in Congress will withhold 50 percent of American aid unless real economic reforms can be certified by the Secretary of State and American investment problems are solved. These funds can be withheld up to 23 months, according to Hill sources.

Ukraine's Airline on Strike

· Ukraine's state-run airline's employees went on strike today demanding to be paid six months worth of back wages, reported the Associated Press. The strike grounded virtually all domestic and international flights out of Kiev. "We won't even speak with the company until they fully pay their 700,00 hryvna [$375,000] salary debt. The crews cannot ensure flight safety. The guys are hungry,they don't have any money, technicians cannot service the planes," said Volodimir HAVRILYUK a pilot representative for negotiations with management. Valeri HOLUBENKO director of the Kiev branch of Ukraine Airlines said that the company owes the salary money from the state budget, but that its own debts are much higher because ticket prices do not cover costs.

Lithuanian Sejm Amends Civil Code

· Lithuanian Sejm adopted today an amendment to the Civil Code, which makes it possible to institute legal proceedings against presidential candidates, who hide their cooperation in the past with secret services of the USSR or other foreign countries, reported Itar-Tass. These kinds of cases will be tried at the district level. Presidential candidates will be required to submit documents on relationships with secret agencies to the director of the electoral commission. Lithuanian legislators are pressing for these amendments to the law because of the presidential election to take place December 21st. Last month presidential candidate, Vytautas LANDSBERGIS was accused of connections to the KGB.

South Caucasus & Central Asia

Tashkent Gold Mine Gains Status

· Tashkent's Almalyk Mining and Metallurgical Complex (AMMC) earned "good delivery status" for its output of gold from London Bullion Market Association (LBMA), reported Financial Times today. By earning this status, AMMC has further consolidated its position on the international bullion market. The importance of achieving LBMA's status is the international acceptance on AMMC's gold and gold mining. AMMC produces 10 tonnes of gold annually and is the second Uzbekistan gold mine to achieve this status. Uzbekistan accounts for 40 percent of the gold production of the former Soviet Union. AMMC produces copper, silver and gold. In 1996, AMMC gained the same status for its silver production.

Caterpillar Inc. to Open Dealer in Baku

· Caterpillar Inc., the leading supplier in the CIS of construction and earthmoving equipment, opened a dealership in Baku, reported a company release. This dealership is the only office of the company in the Caucasus and Central Asia regions. Caterpillar supplies customers in the CIS through an extensive network of sales offices, distribution centers, local representatives, and dealers. The company has more than 80 years of experience in the Russian market. Caterpillar will be involved in various pipeline construction projects.

$50 M EBRD Loan to Turkmenistan

· The Board of Directors of the European Bank for Reconstruction and Development (EBRD) approved the allocation of a $50 million loan to Turkmenistan for the reconstruction of part of the

Ashgabat-Mary highway, reported Itar-Tass. The Ashgabat-Mary highway is one of the central transport arteries and a major section of the North-South transport corridor. EBRD funds are to be used to finance the reconstruction of the highway section from Mary to Tedjen, but sources to fund reconstruction on the section from Tedjen to Ashgabat have not been found.

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

available for non-profit institutions.

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 Inc.

When you need to know it as it happens