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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, November 19, 1997

Russian Federation


Yabloko Resents Chubais-Budget Link

· Russia's Yabloko opposition group declared on Wednesday that it refused to, "participate in a political bargain" and did not accept, "ultimatum demands to link personal matters with decisions on the budget and tax laws." The Communists said Monday they would not discuss the draft 1998 budget while CHUBAIS remained in the government. Yabloko emphasized that such an approach "is dangerous and has no prospects." Yabloko's leader YAVLINSKII and Our Home is Russia leader SHOKHIN both said that CHERNOMYRDIN had told them CHUBAIS will be replaced as finance minister, reported Reuters. SHOKHIN did not say whether CHUBAIS would retain his position as first deputy prime minister.

FBI and Russian Officials Cooperate on Crime

· FBI director Louis FREEH met today with three top Russian officials to discuss matters related to crime and security. With Russian Interior Minister Anatoly KULIKOV, FREEH discussed strategies to combat organized and economic crime, including hacking and cooperation in the fight against drug trafficking. KULIKOV told a press conference today that fight against drug trafficking is a key task for Russia, as the problem is getting more and more acute. Focusing on the problem of the Russian Mafia raised by the US Congress, FREEH emphasized that he had never used the term "Russian Mafia."

FREEH also met with Russian Security Council Secretary Ivan RYBKIN who said that the Russian president encourages cooperation with foreign law enforcement agencies in fighting crime. FREEH said that the level of cooperation between US and Russian law enforcement agencies in fighting crime and money laundering and in training personnel, estab

lished three years ago, is not bad. The meeting focused on fighting against international terrorism.

Russian Federal Security Service (FSB) Director Nikolai KOVALYOV and FREEH discussed cooperation in fighting international organized crime, international terrorism and drug trafficking at a meeting. The two men agreed that their agencies had reached a high level of mutual understanding and cooperation, but could do more in this field.

Chechen Leader Speaks; Goals Still Secret

· The goals of the first unofficial visit of Chechen president Aslan MASKHADOV to the US still are unclear. He said right away that he did not, "want to speak of meetings in the Congress, the Department of State and business community." He did say he was, "quite satisfied with the visit and its major results." MASKHADOV said he did want other countries to recognize Chechnya's full independence, but did not say whether he was seeking US diplomatic recognition.

Commenting on Caspian oil transit via Chechnya, MASKHADOV said, "it is a matter of great political importance and an additional security guarantee." Grozny will not abandon "international tariffs" introduced on results of complicated negotiations with Moscow.

The Chechen leadership does not think the threat of a new war in the republic is gone, Chechen President Aslan MASKHADOV said at a news conference in

Today's News Highlights


Eximbank Invest Directly

Gazprom Domestic Bond

European Republics

Ukraine JV Assoc. Protest Tax

South Caucasus & Central Asia

Caspian Oil Conference in DC

Metromedia Int'l Inc. in Kazkh

Turkey-Uzbekistan Accords




November 19, 1997

Intercon's Daily

Washington. The future of the Chechen republic depends, MAKHADOV believes, on who rules in Moscow. "We do not think this is past. Unfortunately, Russia is unpredictable in its policy. We do not know who takes power tomorrow. In Russia the policy is made by the cabinet, not by the people as it is in the US. So, we have to be prepared for everything."

Yeltsin Approves New Nominations

· Russian President Boris YELTSIN has approved Prime Minister Viktor CHERNOMYRDIN's recommendations to appoint Farid GAZIZULIN and Georgy TAL as the acting minister of the State Property Committee and the acting head of the Russian Federal Service for Insolvency and Financial Recovery, respectively. GAZIZULIN and TAL were the first deputy heads of the aforesaid departments. They will replace Maxim BOIKO and Pyotr MOSOTOVOI, who were involved in a scandal concerning high payments for a book on Russian privatization.


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

Ruble = 5,906/$1.00 (CB rate)

Ruble = 5,900|5,913/$1.00 (buy|sell rates)

World Bank Loan Talks Continue with Moscow

· The World Bank on Tuesday said it will continue to consider new loans to Russia with First Deputy Prime Minister Anatoly CHUBAIS. A World Bank mission will arrive in Moscow today to meet with Prime Minister Viktor CHERNOMYRDIN, CHUBAIS and Boris NEMTSOV. World Bank Vice President Mark Mallock BROWN said he is sure that the bank's board of governors will shortly pass a final decision on the allocation of three loans to Russia: for the structural reform of its economy, for social purposes, and the second "coal" loan. BROWN hopes this will happen in December. However, this will only be possible if the International Monetary Fund backs a new package designed by the Russian cabinet to improve levels of tax collection. "We have declared and we continue to declare that we have faith in this government of reforms and we must help it. But we shall do this only in the macroeconomic context and only if Russia solves a whole line of problems, especially the collection of taxes," BROWN stressed.

Eximbank to Invests Directly in Russian Cities

· The US Eximbank plans to invest directly, by providing export financing, to St. Petersburg and

Moscow with city authorities providing the repayment guarantees, thus bypassing the Kremlin, reported the Financial Times. Bank President James HARMON devised the plan after a visit to Russia where he was impressed with the mayors of the two cities and Russia's forward drive to a market economy. The bank is still waiting for necessary financial data before it makes a final decision on the municipal guarantee policy, a senior Eximbank official said. The chairman plans to increase project financing, which ties repayment to revenue earned by its borrowers. The Eximbank also signed an agreement to provide direct loans to Russian banks so they can extend loans to small and medium sized businesses outside of Moscow.


Gazprom to Issue Domestic Bond

· Russia's gas monopoly Gazprom plans to issue a ruble denominated bond next year. The domestic bond was announced following a new partnership with Royal/Dutch Shell. Shell has agreed to invest up to $1 billion in the issue with another $1 billion going to institutional investors. Gazprom board member Alexander SEMANIAKA said the domestic bond issue is part of the gas group's effort to develop broader range of channels for attracting capital, reported the Financial Times. He hopes that the domestic and international bond issue will be strengthened by an audit which he believes will reveal that Gazprom is still undervalued.

European Republics

Ukraine's JV Assoc. Protests Tax Suspension

· An association of joint ventures in Ukraine will petition the Constitutional Court to repeal a recent law suspending tax breaks. The association has already drawn up the petition and collected signatures, said Olga REVINA, director of the Ukrainian League of Companies. The petition says, "Canceling tax benefits to companies with foreign capital is a breach of the principle of supremacy of law, and causes serious damage to the image of the state." By approving amendments to the corporate income tax law on October 23, the Ukrainian parliament stripped away foreign joint venture's rights to tax breaks. The legislature made the amendments despite requests from President Leonid KUCHMA that tax relief to manufacturing joint ventures be restored.

When you need to know it as it happens




November19, 1997

Intercon's Daily

South Caucasus & Central Asia

Caspian Oil Conference in Washington

· Representatives from Russia, Azerbaijan, Turkey, Kazakhstan, Turkmenistan, Armenia, Georgia, Iran and the US are meeting today and Thursday in Washington to discuss oil opportunities in the Caspian Sea. The primary concern is transportation route options, which contain great political and economic significance. Don STACY, US-Azeri Chambers of Commerce Co-Chairman said, "The single most important issue for Caspian development is transportation. We can't solve any problem, geopolitical or otherwise, until the transportation issue is resolved." With major oil deals, in Kashgan and Karachaganak oil fields, being signed just yesterday between Kazakhstan and various companies (Mobil, British Petroleum, Statoil, Shell, Total and Texaco, Agip, British Gas, LUKoil), it is important to approve multiple pipelines that will give each nation the independence and flexibility to produce and export oil without US sanctions on investment.

The US is opposed to investment in Iran's energy sector and any investment or transit of Caspian oil and gas through Iran. The companies that invest more than $20 million in Iran's energy sector are subject to US sanctions. US Energy Secretary Federico PENA said, "The United States position is clear —we do not support conducting ordinary business with a country that funds, trains, and supports terrorists or seeks to acquire weapons of mass destruction." At the conference former defense secretary Dick CHENEY, now Chairman and CEO of Halliburton Co., criticized that US policies with Iran are counter to US interest in the Caspian region to promote the sovereignty of the newly independent states. Thane GUSTAFSON, Director of CERA, stressed that economic decisions should take precedence over political interests.

After attending the "First Oil" ceremony in Azerbaijan last week, PENA secured the support of Turkey, Azerbaijan, Georgia and Turkmenistan for the East-West pipeline routes to transport Caspian oil and gas, which are crucial to ensuring the security and diversity of the world's oil supplies. "We accomplished our objective by making significant progress on a matter of serious strategic importance. The

United States cannot and will not be dependent on any one region for oil and gas. East-West routes for Caspian oil and gas will allow producers to reach international markets without going through Iran." He clearly articulated the US preference for the Baku-Ceyhan pipeline and also announced Kazakh participation and support for this trans-eurasian route. Kansas Republican Senator Sam BROWBACK also supports multiple pipeline which will avoid giving Iran too much influence over the region. "The ticket to true independence and economic wealth for Kazakhstan lies in its vast mineral and natural energy resources ... and the importance of multiple east-west pipelines ensures this independence."

Jan KALICKI, US Ombudsman for Energy and Commercial Relations with New Independent States, in his address to the conference stressed the importance of the Baku-Ceyhan pipeline to the multiple pipeline strategy. This pipeline has positive features: it avoids the Bosphorus, it gives Turkey and the Caucasus states a stake in energy development, and it has important synergies with gas development and supply. It is necessary to support the efforts of big oil in this region with leadership policies that will keep the momentum moving forward.

KALICKI also outlined the key elements of the US strategy: to promote the development and transport of Caspian energy on an integrated basis; to support sovereign nation-states in their effort to become free markets with political pluralism; and to integrate the Caspian states into the international economic and political community. A main export pipeline decision is scheduled to be made next year by the AIOC.

Metromedia International in Kazakhstan JV

· New Jersey based Metromedia International Group, Inc. (MMG:AMEX) through its wholly owned subsidiary, Metromedia International Telecommunications, Inc. (MITI) announced on Wednesday that Instaphone, the company's joint venture in Kazakhstan, received an operating license to provide local, long distance, and international telephone services; leased phone line services; and data services for a period of ten years using wireless local loop technology. Instaphone also received a frequency license for the Almaty region to provide the wireless local loop services indicated in the operating license. Kazakhstan is a country of 17.4 million people with a current teledensity of only 14 percent.

When you need to know it as it happens




November 19, 1997

Intercon's Daily

President and CEO of Metromedia International Stuart SUBOTNICK said, "Instaphone's ability to rapidly deploy wireless local loop systems at a lower cost than wired or GSM implementations will make Instaphone a significant force in telecommunications in Almaty, Kazakhstan." He added, "Kazakhstan is typical of the countries in which we operate in that the telephony penetration rate in the region is extremely low, representing a significant upside opportunity for Metromedia International. With 17.4 million people in Kazakhstan, a 12 percent increase in teledensity could represent 300,000 subscribers for Instaphone," said a company press release. Installation of the first subscriber lines is expected to begin before the end of 1997.

Metromedia International Group, Inc. operates communications and media businesses in Eastern Europe, the former Soviet Union and other emerging markets providing wireless cable television stations, FM radio stations, radio paging operations, an international toll calling service, Trunked Mobile Radio systems, and GSM cellular operations.

Kazakhstan Looks to China as Trade Partner

· Kazakhstan and China are developing trade relations which in time will conquer obstacles in its path. Kazakhstan exports raw materials, particularly oil, and imports mostly cheap Chinese manufactured objects, while China positions itself toward northwest and central Asian markets. General Manager of Hongkong Bank, the largest in China, Andrew DIXON having just opened a branch in Almaty explains, "We want to be positioned for the growth of trade with China and the Far East." The most visible of this development of Kazakh-China commerce is two deals signed by the Chinese National Petroleum Company (CNPC) for privatized oil companies in Kazakhstan. The deal includes an accord by CNPC to build an oil pipeline from the western part of Kazakhstan to China, which will be the leading importer of oil as its economic growth surpasses its own resources. The major obstacle impeding further trade links is the lack of infrastructure. Trade routes

are slow by truck or limited rail road capacity because of different rail widths. Kazakh President Nursultan NAZARBAYEV said, "we are open for collaboration with China, whose economic achievements are indisputable and give assurance that in the next century this country will be in the ranks of the most developed states." Total trade turnover between the two nations was $500 million in 1996, reported the Financial Times.

Azeri Oil to Novorossiisk

· Russian First Deputy Minister for Oil and Power Engineering Viktor OTT said that about 80,000 tons of Azeri oil will be delivered to the Novorossiisk port through the Baku-Grozny-Novorossiisk pipeline during the first weeks of December. In compliance with an agreement reached by the Azeri International Operational Company (AMOK), no less than 1.5 million tons of oil will be shipped from Baku to Novorossiisk during 1998. These oil wells, developed by an international consortium of oil companies, can produce a maximum of five million tons of oil per annum. OTT emphasized that building additional sections of the pipeline, bypassing Chechnya has not lost its actuality. Laying the pipeline's additional sector, according to the deputy minister, will help reconstruct the pipeline to cope with its increased fuel production in the future.

Turkey-Uzbekistan Cooperation Accords

· Turkish President Suleyman DEMIREL and his Uzbek counterpart Islam KARIMOV signed Tuesday four agreements in the fields of tourism, health, science and technology and cooperation. DEMIREL said Turkey and Uzbekistan have signed more than 60 accords since Uzbekistan's independence in 1991. Ties between the two countries were going in, "a better, warm and constructive way." The Turkish president stressed that Turkey and Uzbekistan will make efforts to further develop the bilateral relations to enhance their trade volume up to $300 million. KARIMOV said that it is very important for Turkey and Uzbekistan to provide support to each other as they share the same language, culture and religion.

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

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When you need to know it as it happens