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

Wednesday, December 10, 1997

Russian Federation

Politics

Moscow's Application to WTO Considered

· The planned seventh meeting of the working group to consider the Russian application to the World Trade Organization (WTO) opened in Geneva on Tuesday. Despite economic turmoil, "Our plans have not changed." to become a member of the WTO, First Deputy Minister of Foreign Economic Relations and Trade Georgy GABUNIA said. He made it clear that lessons of financial upheavals in the Asian markets and their consequences will be taken into account by the Russian side when discussing questions of the entry into the WTO. The meeting of the working group will discuss the review of the latest events in the area of legislation and regulation system in Russia, industrial subsidies, investment measures connected with trade, preferential commercial agreements and agriculture.

New Crime Statistics

· The Russian Interior Ministry reported that there are up to 60,000 members of organized crime group active in Russia. Mafia committed crimes rose from 1.2 percent to 1.7 percent in 1997. The energy and raw material industries are being hit harder with 24,300 crimes this year up 21 percent from 1996. However, 72 percent of crimes committed were successfully investigated. 1.2 million crimes, including 16,500 murders have be closed this year, reported Interfax. Officers identified 176,00 economic crimes which cost the state over 10 trillion rubles.

Economy

Ruble = 5,917/$1.00 (NY rate)

Ruble = 5,935/$1.00 (CB rate)

Ruble = 5,913|5,957/$1.00 (buy|sell rates)

Russian Stocks Fall 2.1% - Yeltsin's Illness

· Russian stocks fell 2.1 percent following reports of President Boris YELTSIN's hospitalization due to an illness. The Russian Trading System (RTS) was at 379.39 points at 1200 GMT down 2.1 percent from Tuesday's close of 387.34 points, reported Dow Jones. Martin DIGGLE, Principal at Brunswick Warburg, said, "The market sold off about 1 percent on the news, but it was very calm, there was no panic." He did note that there is little speculation that YELTSIN might be suffering from anything more serious. Duma Defense Committee Chairman Lev ROKHLIN's comments may have been another factor lead to this sharp drop. He said that, "only a sick person," could make the mistakes that YELTSIN made during his visit to Sweden. He accused the President of lacking sufficient command of the Russian language and argued that YELTSIN's public remarks frequently have to be explained away by officials from the Foreign ands Defense Ministries.

Budget Deficit Over Target by 2 Percent

· Federal minister Yevgeny YASIN told a news conference today that the federal budget deficit next year will be 1.5 to 2 percent over the set target due to swelled state debt expenses. Although the debts are not big and reach 25 percent of the GDP, "they are costly," YASIN said. The government's priority is to reduce borrowings and debts.

The government counts on keeping to the estimated inflation rate of 5.8 percent and the planned increase in the GDP of 2 percent in 1998. In November, tax col

Today's News Highlights

Russia

Forged Rubles Float in Russia

Red Tape Cut for Small Business

European Republics

Ukraine Econ. Tightens Control

South Caucasus & Central Asia

Georgian President in Romania

OTE Acquires Armentel

Azeri-Romanian Oil Deal

Akmola New Kazakh Capital

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Wednesday

December 10, 1997

Intercon's Daily

lection in this country slightly improved against previous months and reached 13.5 trillion rubles, including 11.8 trillion received in live money. The growth of the GDP and industrial production next year is projected at 0.3 and 2 percent, respectively, the minister said.

100,000 Forged Rubles in Russia

· According to the Interior Department of Vladivostok, 100,000 forged rubles are in circulation there as well as Ussuriisk, Artyom and some other areas. Preliminary investigation into the crime has been launched. The law-enforcement bodies are working to trace the forged bills both to the note-venders and distributors. According to head of the Criminal Investigation Department Alexander ZAIMENKO, the forged bills may number several thousand in the 100,000 denomination. The forged money is claimed to be imported from one of the neighboring countries.

Business

Almazy Rossii-Sakha Co. Ltd. Rated Double B-

· Standard & Poor today assigned its double B minus long-term corporate credit rating to Almazy Rossii-Sakha Co., Ltd. (Alrosa). The rating reflects the company's position in the relatively entrenched world rough diamond-gem industry, good reserves, and relatively healthy capital structure. This is largely offset by Alrosa's lack of financial liquidity and difficult operating conditions. Difficult operating conditions are mainly the extreme weather conditions and the extreme remoteness of the mines, which are situated in eastern Siberia just below the arctic circle. Alrosa is lagging behind its South African competitors, particularly DeBeers, in terms of operating margins and financial strength due to higher costs and lack of investments in the past five years. The two main owners of Alrosa are the Russian Federation and the Republic of Sakha, with 32% each.

Russian Islamic Bank Attends Conference

· The Russian Islamic bank Badr sent representatives to attend a banking forum in Bahrain a bid to establish contacts with Islamic banks and lending institutions in such areas as export/import operations, leasing, real estate transactions and work with private clients. The forum is being attended by more than 350 bankers and financiers from 30 countries. Yuri TARILOV of Mezhkombank, also attending the conference said that Islamic financial institutions,

whose combined assets exceed $150 billion, are of great interest for the Russian banking sector.

Win for Shareholders

· Outside shareholders of Novolipetsk Metallurgical Kombinat, one of Russia's largest steel mill, placed five of their nominees to a nine member elected board of directors. The election marks a major victory for shareholders in one of the most high profile battles for shareholder rights, reported the Financial Times. Managing director of Renissance Capital investment bank Dmitry BAKATIN said, "It's an important victory, but one which should have happened two years ago. This is day one of a very difficult restructuring process. There is a lot of work ahead of us." Uneximbank, a shareholder member, immediately pledged $50 million loan to the mill. Cambridge Capital Management, owner of 50 percent of shares, portrayed the dispute as a struggle between western market-oriented investors and Soviet-era red directors.

Moscow Mayor Promotes Small Businesses

· Moscow Mayor Yuri LUZHKOV announced plans to cut bothersome red tape for small businesses, while speaking at a meeting for a program to support and development of Moscow small businesses. The program provides for financial support to small businesses and the development of a fund for small business personnel training, leasing companies, small businesses in prefectures and interregional business cooperation. Moscow has implemented 457 small business projects in 1996-1997. The mayor called for the development of small businesses in the food and light industries and in the production of pieces for machine-building plants. "If small businesses gain support in Russia, it would help to solve social problems and double the federal budget," LUZHKOV said. Moscow small businesses account for 15 percent revenues of the Russian aggregate budget.

European Republics

Ukraine Economy Tightens Controls

· Ukrainian Finance Minister Igor MITYUKOV told Itar-Tass that the National Bank of Ukraine has enough resources to control the financial situation in the republic in the immediate future. He said the main priority for Kiev is to adopt an austere fiscal policy so that the state can keep from inflating expenditures.

When you need to know it as it happens

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He said Ukraine plans to invigorate state finance and is going to cut state expenditures by two billion gryvna to decrease the budget deficit. He said it is necessary to bring finance in order, to compare incomes and expenses and to prove to investors that the state is capable in servicing its debts.

MITYUKOV also announced that the government decided to be moderate in borrowing in 1998 and is going to rely more on its own resources. He said Ukraine plans to broaden and consolidate its market of corporate securities which will be sold at exchanges and outside money markets. This will absorb part of free reserves of national currency and ease pressure on the currency. A mission of the International Monetary Fund in Kiev is discussing a program of the Finance Ministry for the next year, including parameters of the currency and rate policy of the National Bank.

South Caucasus & Central Asia

Georgian President in Romania

· Georgian President Eduard SHEVARDNADZE begins a two-day official visit to Romania today o meet with Romanian President Emil CONSTANTINESCU, Senate Speaker Petre ROMAN and other officials to discuss matters aimed at developing bilateral cooperation. A number of agreements and treaties are to be signed. On Thursday, SHEVARDNADZE is to visit the port city of Constanta to attend a ceremony of the opening of a Constanta-Poti (Georgia) ferry service across the Black Sea.

Russia-Georgian Fuel Cooperation

· Russian Deputy Prime Minister Valery SEROV and Georgian State Minister Niko LEKISHVILI at a joint press conference on Tuesday announced that the two nations have agreed to cooperate in the sphere of fuel and energy. Russian companies Gazprom and LUKoil will participate in the cooperation. Representatives of Gazprom company are to finalize the accord in late December in Tbilisi.

Speaking with Georgian President Eduard SHEVARDNADZE, President of LUKoil company Vagit ALEKPEROV said his company was interested in establishing relations of partnership with Georgia and was ready to work together on oil projects. LUKoil plans to invest $15 million in Georgia.

ALEKPEROV said on Tuesday that his company was ready to participate in building an alternative pipeline for the transportation of Caspian oil. He said the company was ready to deliver in Georgia oil products, as well as prospect oil deposits. LUKoil is also interested in using the production of the Rustavi metallurgical works.

Greece's OTE Acquires Armenia's Armentel

· Greece's telecom company OTE announced on Tuesday that it was acquiring 90 percent of Armenia's Armentel for $142.5 million, with the Armenian republic retaining 10 percent. OTE's Chairman Dimitris PAPOULIAS said, "This acquisition of a controlling interest in Armentel represents part of OTE's strategy for the Black Sea region. We believe that his region offers outstanding opportunities...." Armentel will be exclusively licensed to provide a wide variety of fixed and mobile telecommunications services for a period of 15 years. It will also be licensed to provide value-added services on a non-exclusive basis.

OTE operates 5.5 million line and employs 23,800 people. It also acquired a 20 percent share in Serbia's telecom Sribja, and now aims to buy a 40 percent share in Moldova Telecoms.

Azerbaijan Begins Construction of Pipeline

· First Vice President of the Azerbaijan Operational Oil Company (AIOC) Ilgam ALIYEV announced that negotiations for the construction of a main oil pipeline to transport Caspian oil to world markets with all countries concerned will begin in January 1998. Major contenders for the pipeline's construction include Russia's Baku to Novorossiisk plan, Georgia's Baku-Supsa plan, and Turkey's Baku-Supsa-Ceyhan plan. These projects are estimated at $2 billion, $1.2 billion, and $3.3 billion respectively. Ukraine, Bulgaria, Greece, Romania and Moldova are also countries interested in having the main pipeline on their territory. The US supports the Baku-Ceyhan route.

Determining factors in the decision will be economic expediency and commercial profit. ALIYEV believes Azerbaijan should play a decisive part in the creation of a pipeline company which will engage in the pipeline's construction. "I mean that Azerbaijan should have a major share in this company." As concerns financing, he said this, "is certain to be solved, probably, with own funds or through foreign bank

When you need to know it as it happens

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loans provided the republic deems it advantageous." In the implementation of nine oil projects totaling $30 billion and involving 20 companies from 12 countries, the Azeri share is usually paid by foreign partners.

Azeri-Romanian Oil Deal Ready

· Romanian Presidential envoy Dan CAPATINE to Azerbaijan Deputy Foreign Minister Albert SALAMOV met Tuesday to discuss a proposal from Romanian President Emil CONSTANTINESCU to Azerbaijan President Geidar ALIYEV on shipping Azeri oil exported through the Georgian port of Supsa to the Black Sea port of Constanta to Trieste, Italy. This would require a pipeline to pass through Serbia. Romania believes the project would cost 2 billion dollars. The proposals were passed over to the State Oil Company of the Azerbaijan Republic and the Azerbaijan Operational Oil Company (AIOC), which is developing three Caspian oil fields.

Romania is ready to transport 35 million tons of Azerbaijan oil to the world markets via its territory. The oil will be annually extracted on Azerbaijan Caspian oil fields in the early third millennium.

Kazakh-Kyrgyz-Uzbek Sign Documents

· The Prime Ministers Council of Kazakhstan, Kyrgyzstan, and Uzbekistan signed agreements in Tashkent on Monday. The documents call for the three central Asian countries to expand cooperation in tourism and agriculture. They will also coordinate the Central Asian Bank operations and create a regional stock market. During the meeting, the countries' premiers discussed the issues of establishing a united economic system and realizing economic integration.

The three Prime Ministers also agreed to set up a banking consortium for each department to give full play to some 50 agreements signed previously. They are expected to meet in March to discuss the plans for the banking consortiums. In addition, the three countries decided to establish a committee to monitor the cross-country narcotics trade. The Council

approved the estimated costs of the executive committee of the Interstate Council for 1998.

Kazakhstan's Capital Moves to Akmola

· Kazakh President Nursultan NAZARBAYEV chaired a joint meeting of parliament in Akmola, a windy remote town in the steppe. The first order of business was the adoption of a resolution confirming the change of the nations capital from Almaty to Akmola official today. "Akmola is one of the geographical centers of the Eurasian mainland. Economic, technological, and information streams of the developing Euraisian mainland will come across our new capital in the 21st century," NAZARBAYEV said. New housing has not benn completed for government officials; many are living temporarily in hostels

A working residence has been put up for the President in the new capital next to the buildings of the parliament and the government. However, NAZARBAYEV will continue to use Almaty for arranging international functions. A meeting of the Inter-State Council of Kazakhstan, Kyrgyzstan, and Uzbekistan at heads of state level will be the first diplomatic event held in the new capital.

CIS Financial Conference Opens in London

· The sixth international conference devoted to problem of the banking system in the Commonwealth of Independent States (CIS) opened in London on Tuesday. The forum will discuss the development of the financial sector in the CIS, and strategy of cooperation between banks in the former Soviet republics and Europe. Specifically, the agenda focuses on strengthening of market of corporate securities, regulation and stabilization of national currencies, and prospects of CIS government bonds entering the international market of borrowed funds.

The conference is attended by the leadership of the central banks of Russia, Kazakhstan, Uzbekistan and Ukraine, heads of a number of CIS commercial banks, representatives from the World Bank and European Bank of Reconstruction and Development, British, French and German banks.

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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