DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 908,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, November 17, 1997

package of key tax laws, a resignation of the first vice-prime minister and finance minister, "...would destabilize the executive branch, which can do serious damage to the country's economy," a high-ranking official in the presidential administration said. CHUBAIS, the architect of Russia's reforms, will be less effective because he has lost a considerable part of his economic team and the compromising leverage he once held in the Duma. The Communists demanded that the 1998 budget agreement approval is contingent upon the removal of CHUBAIS. The scandal has also placed on the back burner attempts to remove Prime Minister CHERNOMYRDIN.

Leader of the Democratic Choice of Russia party, chairman of the Fund for Private Property Yegor GAIDAR Sunday commented that if, "...Anatoly CHUBAIS dismissed tomorrow, on Monday, the Russian market would get under a strong pressure. International investors would immediately cut their packages of Russian government bonds and withdraw money from the market, thus increasing the demand for foreign currency." Fuel and Energy Minister Boris NEMSTOV agreed that Russia would lose billions in foreign investment if CHUBAIS left the government.

Prime Minister Viktor CHERNOMYRDIN described the resignation BOIKO and MOSTOVOI as "an adequate reaction" to the scandal. On the "legal responsibility" for the receipt of excessive fees he said, "No on

Russian Federation

Politics

Yeltsin Approves Three Bills

· Russian President Boris YELTSIN has signed three bills into federal laws, a report of the presidential press service stated. These include a law "On changes and additions to the Russian Criminal Code of Practice," "On changes in article 363 of the Russian Criminal Code of Practice," and "On ratification of the agreement of the Russian government and the government of the Kyrgyz Republic on employment and social security of migrants." All were passed by the Russian State Duma on October 24, 1997, and approved by the Federation Council on November 5, 1997.

Government Reshuffles After Book Scandal

· Russian President Boris YELTSIN sacked Privatization Minister Maxim BOIKO and Federal Bankruptcy Service chief Pyotr MOSTOVOI Saturday after reviewing documents provided by the Prosecutor General's Office in connection with The History of Russian Privatization book scandal. Yeltsin dismissed his staff's first deputy chief Alexander KAZAKOV on Friday, who was also involved in the book scandal. Russian First Deputy Prime Minister of Finance Anatoly CHUBAIS submitted his resignation to President Boris YELTSIN, but it was rejected fearing additional financial turmoil. No replacements have been announced as yet.

The President gave a critical assessment of CHUBAIS's participation in the book on privatization in Russia and "pointed to the impermissibility of such actions," according to a Kremlin statement. Yeltsin said the government needs CHUBAIS because of the, "...extremely momentous social and economic situation in Russia." The President believes the Duma is discussing the draft budget for 1998 and a

Today's News Highlights

Russia

FSB Catches IranianSpy

11 WesternBanks Suspended

Gazprom Deals

European Republics

Yeltsin Kuchma Summit

South Caucasus & Central Asia

Russian Trade with Abkhazia

Exxon -Azeri Oil Deal

Mkhedrioni Sentences

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Monday

November 17, 1997

Intercon's Daily

has the right to compromise the president, the government and the very cause of reform in such a way...in any event the government's policy was, is and will remain a policy of the president, a policy of reform. There will be no turns or U- turns...Indeed, no one can prohibit government members from write books or go fishing at their leisure time. Getting royalties is not a crime. But juridical truth does not always coincide with the way we perceive justice, what is permitted and what is not permitted in our everyday life. All the more so when public servants of such stature are involved."

Maxim BOIKO expressed the hope that the privatization policy in Russia would not change. "I worked as vice-prime minister in the government of Russia and state property minister for only three months and I regret that I did so little over such a short period of time. At the same time I am sure that the Russian government's privatization policy — fair, transparent and effective — will continue."

FSB Catches Possible Iranian Spy

· Federal Security Service (FSB) on Friday detained an Iranian citizen, when he was trying to buy rocket design documentation and missile blueprints. The FSB said the arrest followed a series of "search operations aimed at preventing illegal exports of technologies, scientific and technical information and services used for developing weapons of mass destruction, armaments and military equipment." Commenting on the detention, an FSB official said the agency revealed "other facts of illegal actions by foreign individuals and organizations aimed at obtaining dual-purpose materials and technologies." Russia has come under considerable pressure from US and Israel to crack down on Russian bodies accused of helping Iran to acquire missiles or missile technology which may be used in terrorist acts.

Coming on the heals of the recent House Senate Conference on Foreign Aid and the visit of high ranking intelligence officials to Moscow, this may have been staged for their consumption. The incident does not appear to concern the involvement of any state institutions with Iran. The Foreign Aid Bill requires certification that by the Secretary of State before foreign aide can be disbursed to the Russian government it is not transferring missile technology

to Iran or making substantial progress to that end.

Duma Considers No-confidence Vote

· Alexander SHOKHIN, leader of the Our Home is Russia (NDR) group in the Russian State Duma does not preclude a chance that the lower house will resume a procedure of no-confidence in the Chernomyrdin government. In SHOKHIN's opinion, the rejection of the 1998 budget in the first reading may entail automatic resumption of the no-confidence procedure. "This is the most unpleasant version of developments, but we should be prepared for this," he said. According to his estimate, the budget may turn out to be, "in a stalemate situation."

Chechen Commanders Call for Gov't to Resign

· Former Chechen field commanders with the Freedom Warrior movement have called for the resignation of the Chechen government, reported RFE/RL Newsline. Several hundred participants in the emergency congress convened in Grozny on Sunday including, Deputy Prime Minister Ruslan GELAYEV and Interior Prime Minister Kazbek MAKHASHEV. They denounced the Russian-Chechen peace treaty signed in May by Chechen President Aslan MASKHADOV and Russian President Boris YELTSIN and voted no confidence in MASHADOV's foreign and domestic policies.

In an article published by Obshaia Gazeta on Friday, Head of the opposition Adam DENIEV declared that DUDAEV and BASAEV were not Chechen and accused them of earning a living by drug trade. BASAEV led a Chechen group against Georgia in Abkhazia. Rumors are that he and others sell narcotics as means by which Abkhazia earns hard currency.

Economy

Ruble = 5,901/$1.00 (NY rate)

Ruble = 5,903/$1.00 (CB rate)

Ruble = 5,896|5,910/$1.00 (buy|sell rates)

CB Suspends 11 Western Banks

· The Central Bank's deputy governor Sergei ALEKSASHENKO notified 11 major Western banks with offices in London that it suspends contacts with them because of their failure to honor security deals

jeopardizing the Russian stock market. The 11

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Western Banks are the London offices of Banque

with other banks, which is cheaper for us. The reason for this is purely economical. It would have been ideal to use the network of the Russian Savings Bank, but it belongs to the State."

Russian Federal Aviation: Routes and Planes

· The geographic position of Russia makes it possible to have the shortest international air routes in the Russian skies. First deputy director of Federal Aviation Service Viktor GALKIN has outlined priorities in the most rational use of the Russian airspace. The Far Eastern route, which is not used by foreign companies, is the priority. "If we give a possibility to use it, an annual increase of transportation along the route may amount to six percent," said GALKIN. Another priority is the trans-Siberian route for flights from Europe to Japan and South East Asia. The Federal Aviation Service is also working on a promising route from Canada to South East Asia via Russia and Kazakhstan. This is the shortest route, which has not been used by anyone. "The need for such a route is very high, and we will provide for maximum capacity of the route and its maximum profitability," he said.

In addition to air routes, Russian Ambassador to Germany Sergei KRYLOV announced that Russia, Ukraine, Germany and France, plan to make the world largest transport. Russian and Ukrainian designers have developed a blueprint of a giant conversion of the Russian An-70 transport plane. "There are no analogues to the plane of the Antonov design office. The sole exception is the plane, so far in draft, of the leading American aircraft corporations. However, the cost of the future American transport giant will be three times the spending on the production of the Russian model, whose price will not be above 300 million German marks," ANTONOV said.

Nationale de Paris, Chase Manhattan, J.P. Morgan

Securities, Bank of New York, Credit Suisse First Boston (CSFB), two subsidiaries of Deutsche Morgan Grenfell, Credit Agricole Indosuez, Union Bank of Switzerland (UBS), Societe Generale, and Solomon Brothers. Representatives of some of the banks disagreed with the Central Bank's decision, arguing that there was only some technical problem of positions. Analyst said that the problem arose after western banks short-sold MinFins, a dollar denominated Russian government bond. Short selling is where a bank sells stock it does not have in the hopes of making a profit when the price falls, reported the Financial Times.

Business

Gazprom Deals

· The Russian gas monopoly Gazprom board chairman Rem VYAKHIREV and Royal Dutch/Shell managing director Jorun VAN DER VIIR signed an agreement today in Moscow on a broad range of projects, covering development of oil, gas condensate and gas deposits as well as implementation of other projects in the power industry both in and outside Russia. The development of a deposit inside the Arctic Circle in Western Siberia will be the first joint project with production of gas-condensate liquids and gas starting in the year 2003. Under the agreement, Shell makes an obligation to invest, under definite conditions, one billion US dollars in Gazprom convertible bonds.

Gazprom also signed a memorandum of mutual understanding with, LUKoil and the Royal Dutch/Shell to prepare a joint proposal on participating in a tender on privatizing the Rosneft company. The sale of Rosneft shares will be announced by the end of the year, and the process will be completed by mid-1998. The sides will start jointly to work in the near future on estimating assets and drafting a plan for the development of Rosneft.

VYAKHIREV also confirmed today that the Gazprom bought 51 percent of shares of the Promstroibank.

"We have bought shares of the Promstroibank in order to use its regional network. We have been creating branch departments in these regions jointly

European Republics

Russia -Ukraine Summit

· Russian President Boris YELTSIN and his Ukrainian counterpart Leonid KUCHMA met for the first ever Russo-Ukrainian Summit. In a joint press statement, the Presidents stressed that the all-round development of relations between the two countries was the priority task of the Russian and Ukrainian policies. The Presidents concluded to stop levying

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the value-added tax in mutual trade, and have issued corresponding instructions to their governments. They confirmed their intention to sign a 10 year program of economic cooperation. The Presidents also discussed economic problems and mapped out further cooperation within the framework of the Commonwealth of Independent States (CIS). According to the press service, Boris YELTSIN and Leonid KUCHMA discussed in detail specific directions of cooperation in the political, economic, investment, military-technical and other spheres. The sides have reached an agreement that a strategic group on Russian-Ukrainian interaction in the near future will submit a list of tasks for the near future and for prospects to the leaders of the two countries.

South Caucasus & Central Asia

Chechen Prime Minister to Visit Georgia

· Chechen First Deputy Premier Movladi UDUGOV is planning to visit Tblisi to "discuss ways of achieving stability and peace in the Caucasus." The time for the Chechen deputy premier's visit has not been determined by Georgian authorities. Several visits have already occurred in Tblisi this year, among them by Chechen President Aslan MASKHADOV and Vice President Vakha ARSANOV.

Georgia Criticizes Russian Trade with Abkhazia

· In his Monday Radio address, Georgian President Eduard SHEVARDNADZE criticized the Russian government for entering into trade negotiation with Abkhazia as a separate state. Russia will import vegetables, fruit, and tea, which violates the CIS blockade on trade with Abkhazia.

Russia Supplies Gas to Kazakhstan

· After a halt of gas supplies for more than a week, Almaty and other cities in south Kazakh regions again have regular gas supplies. The halt was caused by Turkmenistan cutting its gas supplies to Ukraine and Caucasian republics because they failed to pay for the fuel. As a result, Kazakhstan lost its part of gas it received for the transit through its

territory along the Bukhara-Ural main. Kazakhstan has reached an agreement with Russia's Gazprom to provide gas supplies from a compressor station located on the Russian-Kazakh border. Russian gas will cost Kazakhstan a mere $18 more per a thousand cubic meters than the Turkmen fuel.

Exxon-Azeri Oil Deal

· Azerbaijan's milli medjlis on Friday ratified the agreement between Azerbaijan's State Oil Company (GNKAR) and US Exxon, providing for Exxon's participation in a two-billion- dollar oil project in the Caspian shelf. Under its terms, Exxon must pay $10 million for participation in the project. It will pay $1 million for each 100 million barrels of the discovered oil. After daily oil production reaches 12,000 barrels, Exxon will receive a bonus worth $40 million dollars. GNKAR and Exxon are planning to run the project for 25 years but the contract can be extended for another five years if GNKAR agrees.

Georgian Sentences for Rustavi Branch

· The Georgian supreme court in its circuit meeting Saturday delivered sentences to former leaders of the Rustavi branch of the paramilitary organization Mkhedrioni (Horseriders). Mkhedrioni,outlawed by authorities in 1995 as a crime organization, its leaders were arrested and charged with instigating mass-scale banditry and robberies of the population in western Georgia in 1993. The court at its Rustavi meeting sentenced Zaza PAICHADZE, a leader of the Rustavi branch, to 12 years in prison, his female deputy Dodo GUIGELASHIVILI to 10 years and Dadid TSERETELI, who led a Tblisi unit of Mkhedrioni, to seven years.

Mkhedrioni's founder leader Dzhaba IOSELIANI was seen as one of most influential people in Georgia and was a member of parliament in 1992-95. He was arrested in November of 1995 on charges of masterminding a bomb attack on President Eduard SHEVARDNADZE on August 29, 1995, banditry and being behind a series of murders in 1992-95.

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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