July 13, 1997   

This Date's Issues:   1039 •1040  1041 1042

Johnson's Russia List [list two]
#1042
13 July 1997
djohnson@cdi.org

[Note from David Johnson:
1. Moskovskiye Novosti: Vladimir Gurevich, "Gone Missing. 
Another Round in 'Battle of Giants,' or Big-time Operations To
'Siphon Off' Budgetary Funds?" (More on the great banking scandal).
2. Trud: Interview With Anonymous FSB Informer.
3. John Helmer in Moscow reports on steel conflicts.
4. Philadelphia Inquirer: Inga Saffron, Baku resident is poised 
to witness return of a golden age.]

********

#1
Missing Budget Money: Scandal or Nonstory? 

Moskovskiye Novosti, No. 27
July 6-13, 1997
[translation for personal use only]
Article by Vladimir Gurevich under the "Capital" rubric: "Gone
Missing. Another Round in 'Battle of Giants,' or Big-time Operations To
'Siphon Off' Budgetary Funds?"

A scandal quietly evolving into a loud one or a sensation that failed
to materialize -- such is the meager alternative for the development of
this latest story from the financial-political market.
At a press conference held a week or so ago, the head of Russia's
Central Bank, Sergey Dubinin, recalled that in the course of planned audits
the Central Bank discovered at least two cases where bank security
transactions had caused the federal budget to lose more than $200 million. 
The banks involved were not named, but the relevant materials were handed
to the Prosecutor's Office (because, in the Central Bank's opinion, they
deserve this), and to the government (because budget funds were involved). 
A little later, the names of the banks began to appear in the press, and
the materials themselves began to circulate in certain more or less
well-defined circles. If the materials are regarded as authentic, by
tradition they would not have remained for long in a single copy at the
White House.
A part of the materials happens to be in our possession.
Since official comments on this affair are scanty, although the sums
and surnames involved are highly significant, MN [Moskovskiye Novosti] had
to confine itself in terms of sources to the said materials and to
unofficial comments on them. In order to share with the reader what we
have read and heard without overburdening him with the finer points of
"banking and finance," we will only touch upon those details which form the
basic "outline" [of the story], and try to set forth our own versions of
events.
And so, in February of this year, the Finance Ministry -- to be more
specific, First Deputy Minister Andrey Vavilov -- allocated funds (more
than $230 million) to finance the MAPO Military- Industrial Corporation so
it could fulfill its obligations to deliver MIG fighters to India. 
Although drafts of the contract in question had been circulating in
government circles for a long time, MN's sources say that no contract for
delivery had been concluded. Moreover, the Finance Ministry transferred the
allocated funds not to MAPO itself, but to the MFK Bank, and instructed it
to buy internal hard-currency domestic loan bonds with the money, and then
to remit the bonds to Unikombank -- for MAPO.
MFK carried out the instruction, and transferred the bonds to
Unikombank for MAPO, after which the securities seemed to disappear into
thin air: No traces of them were found either in the bank or elsewhere.
If the money really traveled the route mentioned above, it would be
natural to ask such questions as: Since MAPO was in need of money and the
Finance Ministry allocated the needed sum, why were the bonds bought? Why
did they pass along such a strange route? Finally, where are the bonds now?
Who disposed of them, and how? The second story we know about parallels
the first one in many ways, but a bit earlier. In June 1996, the Moscow
Oblast Administration, in the person of its first deputy chief, Viktor
Vlasov, requested the Russian Government to help pay wages to the oblast's
public sector organizations. The government forwarded this request to the
Finance Ministry, and the latter, in the person of Vavilov, again resorted
to the magic hard-currency loan bonds. These securities with a nominal
value of more than $650 million were bought with funds from the Finance
Ministry (that is, from the budget) and remitted to the Moscow Oblast
Administration for a symbolic payment of 1.5 percent per annum. What was
the idea behind this move, from the viewpoint of common sense? Probably
the idea was to enable the oblast administration to use the securities to
"play" the market for a year and use the profits to pay wages to the
oblast's public sector workers. It is logical that the administration
itself should not engage in this business: It handed the bonds to
Unikombank (40 percent of whose charter capital is owned by the oblast). 
The illogical thing is that the administration there and then transferred
them in trust to the bank, on the very same terms that it had received --
also for one year, and at the same ultra-preferential rate. How did the
oblast stand to gain? What would it pay the wages from? And why did the
Finance Ministry concessions automatically pass to Unikombank?
The bank got the concessions, but did not justify the trust: By the
fall, it was no longer in possession of the hard-currency bonds. Unikombank
had in fact sold them: It first passed them under various agreements to
Moskovskiy Natsionalniy Bank and to the company MFK-Moskovskiye Partnery,
and then told them that it could not afford to buy back the securities.
Unikombank apparently used a portion of the proceeds from the sale of
the bonds to cover its losses, for it was in great financial straits, but
as for the rest....
We do not know how the oblast administration reacted to the actions of
the bank it had trusted, but it was not until November 1996 that the bank's
vice president realized that the Finance Ministry had to have some bonds
back, but which ones? In a letter to Mr. Vavilov, Mr. Vlasov proposed
paying off the debt in Ukrainian hard-currency bonds instead of Russian
ones (Ukraine had earlier issued such bonds to settle its debts to
Gazprom). Admittedly there were no Ukrainian securities on the market
(they were all possessed by the Finance Ministry), there was no market
price for them, and it was not clear where Moscow Oblast would get them,
but Vavilov, who was still a first deputy minister at the time (he would
subsequently become president of MFK), agreed. The oblast instructed
Unikombank to buy Ukrainian securities. And the bank...found some.
For at that moment the securities were on their way from the Finance
Ministry to Moskovskiy Natsionalnyy Bank. Which sold them to Urengoybank,
which was well on the way to bankruptcy and in turn sold them to
Unikombank. Thus, what was being sought was found. The route details where
as follows: When the Urengoybank management was selling the Ukrainian
bonds to Unikombank, it asked the first vice chairman of its board, Mr.
Gloriozov, to transfer the money for the bonds not to Urengoy, but to two
addresses: part of it to an account with Moskovskiy Natsionalniy Bank
(which at once remitted the money to the Finance Ministry in payment for
Ukrainian securities received earlier); and the other part to an account
with Louis d'Or Investment Ltd., registered in Barbados (its controlling
stake is said to be held by Mr. Gloriozov).
To put it in a nutshell, with adjustments made for par values,
discounts, and current quoted prices of the securities, the Moscow Oblast
Administration still owes the Finance Ministry $275 million. Unikombank, as
far as we know, does not have such an amount. The Finance Ministry might
meet the oblast halfway; instead of demanding that the money be paid back,
it could offset the debt against, for example, transfers allocated from
the federal budget to the regions. And the oblast could meet the bank
halfway by accepting its assets and an additional share issue in payment. 
However, the problem remains of how to pay public sector organizations
their wages. Incidentally, a more important question also remains open: To
what extent does the above account correspond to reality? How did the
whole affair surface? Is it true that more than $500,000 flowed out of the
state budget? To what extent (if at all) are the banks and personages
named in the press and in the documents involved in this affair?
To put it more simply, are we talking about another set of "forays,"
compromising materials, rumors, and behind-the-scenes fighting, or about
facts? By and large, the Central Bank's allegation that $500,000 in budget
money has gone missing is a very serious charge: The money either exists,
or it has vanished. All the other "details" can be subject to doubt.
Russian "traditions" prompt us to conclude that the affair is a mere
"sensation" that will come to nothing, except to cast a shadow on certain
people and institutions, as had happened many times before. Recall last
year's Inkombank story: True, in that case the matter was not referred to
the Prosecutor's Office, and it did not concern budget funds, but the
situation in the bank itself. However, in the Inkombank affair too,
materials from a Central Bank audit fell into the hands of the press, in
several versions at that. But nothing happened as a result: The bank is
successful and stable.
So we will not dare affirm that the present materials are authentic,
and that the comments on them are objective. There is only one thing that
can be said for sure: Because they possess the requisite formal
attributes, these materials differ from the numerous anonymous "analytical
notes" or fax messages that periodically arrive at the editorial office.
Needless to say, if the materials are assumed to be authentic and
based on facts, questions -- to put it mildly -- might arise for the banks
involved and the Finance Ministry, especially Andrey Vavilov.
One of the main questions will be: Are we dealing with an iceberg, or
just the tip of it? Did the first deputy minister at the Finance Ministry
really wield such tremendous powers in the disposal of budgetary funds as
those attributed to him? And how did he dispose of the funds, having
outlived four ministers in the space of five years, and leaving the
ministry only with the advent of the fifth, Anatoliy Chubays, whose
influence he could not rival?
Proceeding firmly from the uncertain premise of hypothesis, it can be
assumed that Vavilov's powers and connections went so much higher and so
far beyond the level of some particular banks that there can be no
continuation of this story except for new hypotheses.
Nevertheless, let us risk listing several versions of the story.
Version one: We are dealing with a "showdown" at the very top of the
country's leadership; in such cases, names and titles play a purely
pragmatic role: Whichever are more advantageous to use at the given
moment. Version two: Powerful financial groupings (the press names the
financial-industrial groups of Boris Berezovskiy and Vladimir Potanin) are
engaged in another fight. Version three, which also appeared in the press:
The Central Bank came under strong pressure, including from a group of
"primed" Duma deputies, with the ultimate aim of removing Central Bank head
Sergey Dubinin from his post, and therefore decided to show that it has
things it can use to counter the pressure. Finally, version four, which is
too simple and unusual for us: Planned, competent audits of banks can
sometimes produce the most unexpected results.
The easiest thing is to ask: When you put them all together, aren't
all these versions true? And the easiest answer is yes.

**********

#2
Interview With Anonymous FSB Informer 

Trud
July 5, 1997
[translation for personal use only]
Interview with FSB informer "Oleg" by Viktor Khlystun; place and
date not given: "Informer"

In the past, when you could end up in prison for telling a joke about
leaders, these people were feared. Now there might seem to be nothing to
fear, but you still feel a chill in the pit of your stomach. Even though
it is clear that neither the intelligence service nor state security can
exist without such people. Many of them regard their profession as a
vocation and even like it. My hero is precisely such a person. He is an
FSB [Federal Security Service] secret informer.
I had talked with secret police agents and people who work for private
companies and search for unfaithful wives or husbands. But state security
agents are heavily shrouded in secrecy. Even now. It would be nice to find
out what has happened to them as a result of our turbulent changes. The
one day my old acquaintance Oleg suggested that I meet a genuine
professional in the business. On the appointed evening the doorbell rang. 
It was Oleg. We sat down in the kitchen and I asked him when his agent
friend would arrive. Oleg smiled: "Turn your dictaphone on." I switched
to the formal form of address.
[Oleg] I never dreamed of becoming an intelligence agent and didn't
used to devour detective stories. I studied to become an engineer and went
to work at a plant. It was a semisecret enterprise, and some of its shops
are totally hidden from outside eyes. Then a KGB operations officer
approached me. Of course, it was not for no reason. It has to be said
that the situation at the plant was quite appalling at that time. 
Technical requirements were flouted, and everybody gossiped about this in
dark corners. The plant authorities did nothing because they themselves
were mixed up in the outrages. I probably expressed my indignation louder
than anyone.
I was summoned to the personnel department to clarify something in my
file -- nothing unusual. A nice guy was sitting there -- incidentally, he
was my age. I saw from the conversation with him that he knew a very great
deal about me -- he even knew some of my habits.
I spoke with him openly about our problems. I named the person who I
thought was to blame for the chaos -- the chief engineer. All the
violations of technical requirements were indeed down to him. Some time
later the engineer was dismissed. This both gladdened and surprised me. 
What surprised me was that he was dismissed not for violations of technical
requirements but for...drunkenness and depravity. I had not spoken about
such things, perhaps somebody else had provided this information, I don't
know. A few days later the state security officer got hold of me again. 
He thanked me for the information and assistance and explicitly proposed
collaboration. I agreed and made a signed statement to the effect that I
was collaborating of my own free will and would not disclose this.
[Khlystun] So are you now violating your own solemn pledge?
[Oleg] No. At one time in my life I totally quit. Nowadays there is
no need now to make written pledges or statements. Times have changed, a
great deal has changed. However, the basis still remains. And it's not
bad. [Oleg ends]
Many people view informers' activities with little enthusiasm. They
are popularly known as stool pigeons, spooks, gofers, or squealers.... 
What is our hero's attitude to this? What is his justification, so to
speak? [Oleg] No state can do without informers. In the United States,
for example, the Treasury Department has the greatest number of secret
agents -- taxes are collected with their help. Squealers, in the popular
sense, are disliked both in the security service and among us. Perhaps
some people like to peer under their colleagues' beds or bad-mouth their
neighbors, but what is that to do with me? My job is totally different. I
fulfilled specific missions that required a design engineer's expertise. 
My information helped, to a certain extent, to change the situation at the
plant, and this, you can imagine, made me feel good -- my efforts were not
in vain.... I received nothing except gifts. Several times I was offered
money as a bonus, but I refused. To be honest, I did not feel like signing
the receipt and leaving a trail, if you know what I mean.... All the more
so now. I am a businessman and am earning several times more money than
the operations officer with whom I continue to collaborate. Working as an
informer and agent is my second life. Nobody knows virtually anything about
it.
[Khlystun] Not even your wife?
[Oleg] Especially my wife! She does not even suspect. If she had
known, she would have been through a lot. For instance, the general hatred
at the beginning of perestroyka for those who collaborated with the KGB. 
It is unpleasant to recall this, but I feared not for myself -- but for my
family, for my wife and children. There were calls to make public the
lists of people collaborating with [security] agencies. It is terrible to
recall. They wanted to pillory everyone. But somehow the stormclouds over
my head dispersed. Everything calmed down. Nobody came to me any more. 
The operations officer with whom I was working disappeared. I thought my
secret career was over. I continued to work at the plant. But then I came
to the notice of some dubious individuals. First one of them approached me
and then another. After a while I realized that they wanted to involve me
in the underground manufacture of pistols. At my own plant! I felt
annoyed and bitter. So then I myself began to seek meetings with state
security officers. These individuals wanted me to help them with
blueprints and design advice. Incidentally, they produced quite a good
model
-- a lightweight version of the Makarov pistol with combat performance
no worse than the original. A six-cartridge version for contract killers. 
But this was later. I contacted state security and was asked to remain in
the group and find out what it was doing. I played along with the
criminals, so to speak. [Oleg ends]
This is a significant point. To be honest, Oleg was helping criminals
to manufacture weapons. According to our laws, this is a criminal act. So
the question arises: How are agents protected from suspicion or from
trial? After all, they often infiltrate criminal groupings and act in
concert with them, so to speak. There is much you cannot explain in court.
[Oleg] Of course, sometimes agents are brought to trial to avoid
arousing the criminals' suspicions, but they usually receive suspended
sentences. Although sometimes the situation is different. It is hard when
an agent's cover is blown. He has to disappear together with his relatives
and friends. This is no joke. Of course, he is helped to get fixed up and
to disappear, but this is a hassle.... In my case, fortunately, everything
has so far been okay. Even in the case of the underground manufacture of
pistols. I did not come to the investigator's notice. We simply had a very
good plan.... [Oleg ends]
I put myself in the shoes of those who are not very fond of the secret
informers' tribe: Did Oleg really not get a kopek for his "services"? 
Important information costs money -- this is normal nowadays. Oleg swears
that he only accepted a valuable gift as a souvenir of the operation. 
Without any inscription or identifying features, of course. But a person
must experience at least some pangs of conscience? After all, the informer
plays the role of provocateur.
[Oleg] As I see it, there is nothing immoral about the job. They
would have found a designer to help them make the pistol anyway. Isn't
that so? I did not provoke them and did not incite them to commit the
crime. These were not errant people but hardened criminals. Can there be
any question of pangs of conscience?
[Khlystun] As you meet with these lowlifes on many occasions, have
you never felt an urge to punch one of them in the face? [Oleg] This is
not necessary. I have now learned not to think about my personal revenge
or about my own sentiments at such moments. Why? Everybody shouts: Put
the maniac up against the wall! But he has to be found first. I can tell
you this: No maniac, terrorist, or the like has ever been caught without
the help of secret agents or secret informers. Incidentally, we are always
on the alert for such criminals, we are given tip-offs to ensure we are
abreast of the situation and know if necessary what to look out for. 
Initiative is not frowned upon. Why not keep an eye on people who may be
maniacs? I try to be vigilant about everything and everybody. Many
criminals walk among us unpunished. If information emerges about drug
trafficking or terrorist plans, I immediately pass it on to the relevant
agencies.... A common mission for all agents is also to pass on
information about planned terrorist acts or attempts on the lives of
high-ranking state officials. But as far as I know, the presidential guard
has its own informers and secret agents. Many of them live near the
buildings where the president often stays or visits, or along the most
likely routes that the head of state takes. Lots of different folks work
to ensure the safety of the president and premier.... [Oleg ends]
Among intelligence officers and security officers nowadays there are
traitors, careerists, and profit-seekers. Confidence in security agencies
and organs of power is waning. So much is being written and said about
this now! What is left for informers to do in such a situation, how can
they act?
[Oleg] It is in vain that journalists not cast aspersions on the FSB.
Of course, there are scoundrels even there, but on the whole, in my
opinion, the people there are of highest integrity. And as for the
authorities, I personally serve the law and not them. What is most
important to me is to ensure that the LAW is complied with. Only in this
way will we be able to change anything in our Russia. I have a specific
job. I do it in my own area and I hope I do it well. If everybody
fulfilled their civic duties in this manner, we would have defeated crime
long ago. Don't misunderstand me: I am not praising myself, I just want
to recall once again that there exist sacred civic duties that many people
have forgotten.
[Khlystun] Apart from eliminating the criminal group that was
manufacturing weapons, have you received any other specific missions? Do
they have anything to do with our market aspirations? I mean primarily the
gravitation toward the West.
[Oleg] Let me explain how I see this. In the past no foreigner in
our country could take a step without coming under the surveillance of
state security officers. It can be said that some of our people were
afflicted with spy mania. But now a foreigner can open any door without
much effort and learn secrets. Some individuals will even tell him about
that with great pleasure -- for money. It seems that foreigners here do
whatever they like. But this is not the case. It is just not customary to
speak about such things aloud. Most of my work now is with foreigners. My
direct task is to reveal their connections with special services, to find
out who has come here with good intentions and who.... Recently I had to
work on a specific case of a purely market nature. One of our firms was
purchasing technology abroad. As the deal was in my area of expertise, I
was required to do serious work: To find out what they were palming off on
us. It turned out that they were trying to dupe us, and in a very big way.
I reported the whole story. The deal was called off.
[Khlystun] You are a businessman. Do your skills as an informer help
you in your activity? Many state security officers have gone to commerce
or business and are prospering....
[Oleg] You want to ask whether I use my secret official position for
personal purposes? Of course, analytical skills with respect to work and
the ability to be more alert to details which other people ignore give me
some advantages. But there is simply nowhere to apply the information
acquired through my work as informer and no reason to do so. For many
people I am an ordinary businessman and I keep up this reputation. If you
like, you can call me a "plainclothes businessman." I will not object.
[Khlystun] Oleg, I would like to ask you the following question: You
are a man of duty, but for some reason you have not said a word about duty
to the Fatherland. Is this not customary?
[Oleg] I don't like to speak about duty in general. It is always
with me. [Oleg ends]
Oleg left. And I started recalling how we had come to know each
other, how he came to visit my home and join my large circle of friends. 
It suddenly dawned on me that I cannot remember how this all happened, who
his wife is, and whether he has children. He is a professional, no doubt
about that.

**********

#3
Date: Sat, 12 Jul 1997 08:12:53 +0400 (WSU DST)
From: helmer@glas.apc.org (John Helmer)

FROM JOHN HELMER
MOSCOW BUREAU
Telephone/Facsimile (7095) 941-4989
E-mail: Helmer@glas.apc.org
July 12, 1997

ZAPSIB IN FIGHT BETWEEN KEMEROVO AND MOSCOW

West Siberian Metal Works (Zapsib), the ailing Russian steelmaker
from Novokuznetsk (Kemerovo region), is facing a new government
inquiry into its financial operations, amid charges of illegal capital
transfers abroad, and a continuing fight among Zapsib's creditor banks
over who should control the management. The regional and bank rivalry,
according to one Zapsib official, caused blood to spill in Moscow
this week, in an abortive assassination attempt.

Zapsib, which ranked fifth among Russia's top steelmakers in production 
volume last year, dropped to seventh place in June. The 1996 output of
steel was 4 million tons, and 3 million tons of rolled products. Export 
income for the year fell about 14%, a Zapsib source says. The 1997 result 
through May 31 is down by 30%, according to data gathered by RL.

Currently, Zapsib's total debts are acknowledged by creditors and management
to total Rbs4.8 trillion (equivalent to $830 million). This includes debts
to raw material suppliers, creditor banks, the state customs committee
(Rbs534 billion -- about $100 million), and the employees' pension fund
(Rbs227.5 billion -- $40 million).

Late last year, Gennady Arikov, Zapsib's deputy general director, told 
RL the management had agreed with its banks on a debt rescheduling
plan. $10 million was to be repaid to Alfa Bank of Moscow "over several 
months". In addition, Arikov said Zapsib would "cooperate" with
the bank's trading arm, Alfa Eco, for purchases of coal. Further 
rescheduling of the company's debt should be over "two to three years", 
Arikov added. He dismissed a $50 mn claim by Alfa, saying the figure had 
been inflated by interest and penalty charges which, Zapsib believes,
should not be paid.

Arikov and Tokobank of Moscow also agreed that debt servicing for 
"about $25 million" owed to Tokobank should proceed "normally".
They and the Kemerovo Arbitration Court, where the creditors had applied
to put Zapsib into bankruptcy and replace the management, also cut down the 
size of the debt claimed by Credobank of Moscow from Rbs850 billion 
($155 million) to Rbs 341 billion ($62 million). Imperial Bank, the last of 
Zapsib's bank creditors, was owed $4.5 million at the end of 1996. 

Arikov didn't deny the Zapsib management was playing ts creditors against 
one another to gain time, and improve terms. The clear preference of the
company was for Tokobank, and not Alfa, which was seeking steel products
for trading by its Alfa Eco affiliate; nor Credobank, which was in serious
financial trouble itself.

For several months, Alfa has been claiming that, as Zapsib's largest
creditor, its candidate for administrator to manage the company's
affairs should be appointed by Kemerovo court. Alfa offered to inject new 
cash to revive production, if the Zapsib board agreed to the Alfa 
candidate, Boris Kabak. Appointment of an external administrator was forced 
by earlier rulings of the court. 

Ahead of another hearing scheduled on June 24, Kabak said that
external management is "the only way" to cope with the plant's debts, which
he estimated at Rbs4 trillion ($700 million); interest charges are adding 
Rbs80 billion ($13 million) monthly to this figure, he claimed.

The court ruled against Kabak's appointment, and appointed Andrei
Voronin, head of Zapsibcombank, instead. A small regional bank, it
is a subsidiary of the bigger Kemerovo regional concern, Kuzbassprombank.
Voronin has worked before as an economist at the Zapsib plant. 

Sources at Kuzbassprombank told RL it has excellent relations with 
Zapsib, and has extended a $25 million credit line since 1992. An
unspecified amount of this is included in Zapsib's current indebtedness.

However, Kuzbassprombank and its Zapsibcombank affiliate have been able to
capitalize on their strong regional base, and rally opposition to
the Moscow bank moves. "Everything is being done on a regional basis,"
RL was told. 

Support from the newly designated governor of Kemerovo, Aman Tuleyev,
who visited Zapsib this week, is also expected. Tuleyev is stepping
down from a post in the federal government, where he was the lone
representative of the Communist Party opposition that won the 1995
Russian parliamentary elections. A resident of Kemerovo, he headed
the regional parliament for several years before moving into national
politics.

Alfa Bank is expected to continue wielding its considerable
Moscow connexions to keep up the pressure on Zapsib. Alisher Kalanov, an Alfa 
executive, told RL Kuzbassprombank "lacks the team, the programme,
and the money to deal with the problems of the enterprise." He pointed
out that the newly appointed administrator must seek approval of a majority
of the creditors, before he can implement any policy at Zapsib. Kalanov
said he "doubts" Alfa will go along.

The rivalry between Kuzbassprombank and Alfa Bank is well-known, acknowledged
Nikolai Kudishev, secretary of the Zapsib board of directors. He claims this
was behind the attempted assassination in Moscow on July 3 of Dmitri
Chirakadze, the chairman of the creditors' committee, and a deputy 
governor of Kemerovo. Chirakadze was stabbed, and is now
recovering from his wounds.

The federal government has announced that a special commission appointed
to deal with illegal export-import hard currency-financial operations will
focus on Zapsib. 

Last month, Russian media reports claimed an audit of Zapsib, carried out
by the Ministry of Finance, had turned up evidence to support charges
of financial violations. The uncorroborated press reports allege 
managers of the company had established an offshore entity, through which
transfer pricing manipulations enabled funds to be accumulated in offshore
accounts. Hundreds of millions of dollars are alleged to have been involved.
Novomet Ltd., a Hong Kong company established in 1992 with a substantial
Zapsib shareholding, together with VostokInTechProm, Euromet AG, and Novomet
of Moscow, have been named so far in the flurry of allegations.

So far, the new administrator at Zapsib has made no commitments, except
to promise a start to overdue payments of pension fund obligations.

Alfa's chairman, Mikhail Fridman has announced his bank will appeal the
Kemerovo ruling on the administrator. He accuses the court of local 
favoritism.

--------

RUSSIAN STEEL GETS HOT UNDER INVESTOR COLLARS

The battle for investor control of Russia's second largest steelmaker, 
Novolipetsk, turned even nastier Thursday, when an American group claiming 
majority control of the company ran into unexpected Russian criticism, 
attacked a competing bid from a British company, and then ducked for cover
from skeptical questions from the press.

The clash occurred only days before the annual meeting of shareholders
in Novolipetsk Metallurgical Kombinat (NLMK), due Saturday. 

"We have acquired a majority shareholding in NLMK," said Thomas Gaffney, 
chairman of Cambridge Capital Management Limited, which alone holds 17.8% 
of the steelmaker's shares; with other allies, Gaffney's group claims it 
now forms "the largest shareholders in NLMK." 

The shareholders' meeting on July 12 "is in direct violation of orders 
issued by the Lipetsk Arbitration Court that support our right to 
proportional representation on the NLMK board of directors," Gaffney 
declared. He has joined with the Sputnik Fund, a unit of the Moscow-based 
Renaissance Capital investment group, Salomon Brothers as advisers, and 
Chadbourne & Parke, legal representatives, to oblige NLMK to hold immediate 
elections to the board. 

Rulings on suits brought by the group in the Lipetsk regional arbitration 
court have endorsed this claim. The NLMK management is appealing to the
Supreme Arbitration Court in Moscow.

The management of NLMK, Gaffney said, "ceased to have legal
authority to govern since April 1997. The July 12 meeting is a sham." 

This provoked sharp reaction in a press conference with Lipetsk regional 
representatives, metallurgical union leaders, and the Russian press. 

NLMK directors have said in interviews it is the timing of the elections, 
not the requirement to hold them, that remains in dispute. They say
legal challenges to the ownership of the shares Gaffney and his allies
claim must be resolved first, and that while the higher court appeal is 
pending on the election issue, they keep control of the company.

The management and the Lipetsk region argue that a court ruling already
puts in doubt a 5% shareholding claimed by the challengers. Raphael
Akopov, an attorney for the challengers, said the appeal his group
has lodged means this ruling is "not operative." Accordingly, the shares can 
be voted in balloting for new directors, he claimed. 

Gregory Bedrossian, managing director of the Sputnik unit of 
Renaissance Capital, said his count of majority control in the steelmaker
also includes the 15% shareholding that is being administered by a group
ally, International Finance Company (MFK) Bank, in trust for the government.

The legality of that loan-for-share transfer by the Russian government in
December 1995 has been attacked by the independent state auditor. A Lipetsk 
official claims there will be a challenge in the regional court soon. 
Salomon Brothers executive James Dannis said he isn't aware of it.

Russians who heard the presentation by the American executives and their
attorneys tried quizzing them when questions went unanswered. Andrei
Bogolubov, press spokesman for the challengers, said he had "never seen
such unprofessional and threatening questions."

The contest over who controls the big steelmaker -- which is reporting a 3% 
lift in steel output in the first five months of this year -- has produced 
more acrimony than any other investment in his Russian portfolio, said 
Bedrossian. 

According to Bogolubov, the controversy has already prompted 
officials of the Russian government to briefly withhold an entry visa for 
Renaissance chief executive, Boris Jordan, a United States citizen.

This week in Moscow, Jordan announced the merger of his company
with MFK Bank, which is a subsidiary of Uneximbank, Russia's most politically
influential commercial bank. The head of Uneximbank, Alexander Potanin,
who was deputy prime minister until early this year, claimed the
merger will "probably" attract major investments into NLMK.

"You don't threaten me," Bogolubov told a reporter when refusing
to say who is behind Cambridge Capital Management. "An international
group with impeccable credentials," Gaffney said.

The heat of this shareholder contest has been stoked in part by
suspicion on the part of Lipetsk region that the Moscow interests are out
to dismantle the plant, and cut jobs. A third of Lipetsk city inhabitants
depend economically on the steelmill. 

The anger of the US investors is also triggered by moves the
London-based Trans World Metals group have made to solidify majority
control of the company for their group, in alliance with the current
management.

Last month, Trans World made public its request, through the Chicago
law firm Mayer Brown & Platt, for the Russian government to hold an open 
tender for the 15% share bloc held by MFK. Trans World offered $96 million 
for the shares -- three times the price paid by MFK in December 1995. 

Gaffney, joined by Dannis from Salomon, said there is no legal 
requirement for this tender to be held until December 1998. In the meantime, 
they claim they have the legal power to vote the shares to elect new NLMK 
directors. Bedrossian dismissed the Trans World bid as "out of context." 
"Our group will bid for those shares," Gaffney added, when the auction is 
held.

Gaffney blamed the NLMK management for what he descibed as 
"under-investment in the plant," for "no financial plan and no long-term 
strategy," and for accounts that are "not open to outside, independent 
scrutiny." Later, he admitted he was aware that European Commission 
consultants, Sofres Conseil and Roland Berger, had prepared detailed 
analyses and reports on NLMK; and that during negotiations with the European 
Bank for Reconstruction and Development (EBRD), NLMK's accounts had been 
audited to international standards. He claimed his group has been 
negotiating with international investment banks for future financing for 
NLMK, but knows nothing of the other efforts. 

Dannis of Salomon Brothers said the EBRD was not proceeding with a
loan to NLMK. An NLMK director alleges the reason for that is the
challengers used their connexions with the Russian government to get its
representative on the EBRD board to vote against the NLMK loan 
application.

*********

#4
Philadelphia Inquirer
13 July 1997
[for personal use only]
Baku resident is poised to witness return of a golden age 
By Inga Saffron
INQUIRER STAFF WRITER

BAKU, Azerbaijan -- Venturing out of her one-room, Soviet-era apartment, 
down the broken concrete steps of the unlit stairwell, and out onto the 
city streets, Sara Ashurbekov sometimes feels that she is returning to 
the Baku of her childhood.
After a lapse of eight decades, there are again elegant villas shaded by 
fig trees, French restaurants, all-night casinos, Mercedes-Benz cars 
racing through the streets, and oilmen from America and the West 
speaking in foreign tongues.
At 92, Ashurbekov is probably Baku's oldest living former millionaire, 
the daughter of one of Azerbaijan's first oil barons, and the link 
between the city's turn-of-the-century oil rush and the coming one. 
Small, slow-moving, but quite sturdy for her age, Ashurbekov has lived 
long enough to see Baku change from a cosmopolitan boom town, where cool 
Turkish tea gardens competed with French patisseries, to a sooty Soviet 
industrial center, and part way back again.
If there is indeed a Kuwait-sized oil bonanza in the Caspian Sea off 
Azerbaijan, as Western oil companies predict, then Ashurbekov could live 
to see a late-20th-century blossoming of Baku as grand as during her 
childhood.
Growing up during that brief moment between the first oil gushers and 
the 1917 Russian Revolution, she enjoyed a life that combined oriental 
opulence and European refinement. With money earned in the oil business, 
her father, Timurbek, built a lavish, neoclassical mansion not far from 
the city's vine-draped medieval walls. 
Ashurbekov and her five siblings were whisked to school in a yellow 
Benz, sent to take the waters in Baden-Baden, Germany, and taught to 
speak French, German, Russian, Turkish and English, in addition to their 
native Azeri. The languages were useful when the Rothschilds, Nobels and 
other foreign business tycoons dropped by for parties at their home.
An accomplished historian who puts in three days a week at an academic 
institute, Ashurbekov still likes to entertain, but now she makes do at 
a small table wedged between the bed and a bookcase in the modest 
apartment she shares with two younger sisters and six cats. After 
pouring tea into voluptuous Turkish glasses, she clamps a sugar cube 
between her remaining front teeth, in the old Caucasian style, and lets 
the steaming liquid filter through the sweet crystals.
Her grandfather, she recalled, was the one who first noticed the greasy, 
black slicks on a new piece of land he had bought to graze his sheep. 
``He didn't know what to do with the oil at first,'' she said.
But by the 1870s, foreigners were pouring into Baku, scooping up the 
crude with buckets and turning it into kerosene. By the time automobiles 
became popular early in the 20th century, Azerbaijan was supplying half 
the world's oil. The Ashurbekovs went into business with the Rothschilds 
and made millions.
The oil boom transformed the Caspian port city, which had been a 
provincial caravan stop for Persian merchants and then a czarist 
outpost, into a sophisticated metropolis. The new rich competed to build 
magnificent mansions and European-style apartment houses, slotting in 
the new structures alongside old Turkish houses, with their ornately 
carved wooden balconies.
The city was more varied ethnically than it is now, with Azerbaijanis, 
Armenians, Russians, Turks, Persians, Lezgins and Jews living in close 
proximity. In those days, Ashurbekov said, Azerbaijanis struggled to 
emulate everything European. None of the five Ashurbekov sisters wore 
head scarves, and male and female visitors mingled together in the 
living room. Adopting European customs was a form of liberation, unlike 
now, when practicing strict Islam is the way to rebel against the years 
of forced Soviet secularism.
The first oil boom ended almost as abruptly as it had begun. Even before 
the Bolshevik Revolution, Joseph Stalin -- an Ossetian from nearby 
Georgia -- had spent time in Baku organizing the legions of poorly paid 
oil workers. By the time the Red Army reached the Caucasus, Azerbaijanis 
were sympathetic to the new regime.
In 1919, Ashurbekov's family fled to Istanbul, where they survived for 
five years by selling off the mother's jewels. Sara finished a French 
lycee, and would have happily gone on to the university there, but an 
uncle in Baku wrote a letter urging the family to return. It was the 
middle of the New Economic Policy, the brief period of liberalization 
between Vladimir Lenin's death and Stalin's rise to power.
So they went back to Baku. By then, their old house had been 
confiscated, and the eight Ashurbekovs were allotted three rooms in a 
relative's apartment. Only Sara was able to find work, for her excellent 
French made her valuable as a translator. Her siblings were denied entry 
to the university, punishment for bourgeois origins.
Sara married a Communist Party member, but he was exiled to Siberia. 
Then, in 1935, Ashurbekov's father was arrested and executed. The uncle 
who had urged the family to return died shortly afterward, wracked by 
feelings of guilt, Ashurbekov believes.
During World War II, Sara's only brother was killed fighting the Nazis. 
As Adolf Hitler's armies inched closer to the Baku oil fields, Stalin 
ordered the dismantling of the city's refineries, chemical plants and 
factories. The bulk of the city's industry was shipped by rail east of 
the Urals and reassembled. By the end of the war, the Soviet oil 
industry had moved on to Siberian and Central Asian fields.
Somehow, even while enduring the hardships of Soviet rule, Ashurbekov 
managed to find a position in the Baku Academy of Sciences, where she 
specialized in early Azeri history. Writing under the non-Russified 
version of her family name, Ashurbeilli, she became the foremost 
historian of the period. Despite her accomplishments, what she boasts 
about most is the time she won a beauty contest in Baden-Baden, when she 
was 8.
It wasn't until 1959, when she married her second husband, that she 
received the one-room apartment she now occupies with sisters Adelia, 
79, and Mariam, 85. Ironically, after she became a historian, her old 
family home was turned into a Soviet museum. 
All her remaining possessions -- her parents' wedding album, family 
photo, a few old letters and shelves of books -- are stored in two large 
bookcases that take up most of the space in the apartment. Instead of 
the old family Benz, Sara now rides a crowded trolley to her office at 
the Academy of Sciences. She often passes the gracious old Turkish 
houses in the old town, which are rapidly being renovated for offices by 
Western oil companies. Together, the sisters survive on a monthly income 
of $90.
She is working on her sixth book of Azeri history, but she refuses to 
write about her life. It is enough to talk about it over a glass of tea, 
she insisted. Yet, she understands that ``I'm a unique person, and when 
I die, everything will be gone.'' But, she added, ``That's why I'm 
trying to live as long as possible.''

**********