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

Tuesday, November 25, 1997

Russian Federation

Politics

Shalatov Sacked by New Finance Minister

· Finance Minister Mikhail ZADORNOV on Monday fired the deputy finance minister Sergei SHALATOV, who was responsible for devising a desperately needed but much criticized draft tax code. ZADORNOV said that the parliament had developed an allergy to SHALATOV and his reforms which were hampering the governments attempt to overhaul the country's fiscal system, reported the Financial Times.

As head of the parliamentary budget committee, ZADORNOV strongly criticized SHALATOV's handling of the draft tax code. ZADORNOV made it clear he wants to bring his own people into the finance ministry, but did not name SHALATOV's successor. An aide to SHALATOV told reporters that, "It seems the new minister will be laying out different policies. It seems different people will be dealing with tax legislation."

ZADORNOV also pressed ahead with reforms to cut the link between the government and big business by withdrawing state custom funds amounting to about $147 million from Uneximbank. Russia's most powerful bank, Uneximbank has been accused of exploiting its ties with the government for financial gain and bribing government officials. Federal Custom Service accounts will also be closed from Uneximbank by the year's end.

Back Wages Payment Serious Business

· President Boris YELTSIN today warned the government and First Vice Premier Boris NEMSTOV that they would be faced with "negative consequences" if the wages owed to the workers of the budget-financed organizations would not be paid

before January 1st. "This must be done without fail if the government wants to avoid negative consequences," YELTSIN said during today's meeting of the Russian Security Council. The President recalled that he had agreed to put off the deadline for settling those debts from December 1st to the New Year. "Boris NEMSTOV and I agreed to the latter date, and this means that you must cope with your task by January 1st," the President added. YELTSIN stressed that he intended to give special attention during the upcoming government's report, scheduled for December 1st, to the problem of settling the wages debts and subsidizing the budget sphere.

Economy

Ruble = 5,912/$1.00 (NY rate)

Ruble = 5,914/$1.00 (CB rate)

Ruble = 5,907|5,921/$1.00 (buy|sell rates)

Russian Tax Collection Figures to Improve

· The Russian State Tax Service (STS) collected 12 trillion rubles worth of budget revenues in October, and is going to collect another 13.5 and 14.5-15 trillion in November and December respectively on condition of, "... a perfect work with the biggest non-payers," STS head Alexander POCHINOK said.

The STS will have to collect 18 trillion rubles every month in 1998 to meet the budget parameters, he noted, adding that the task seems extremely difficult without a new Tax Code yet to be approved by the legislature.

Today's News Highlights

Russia

Gazprom Blue Stream Revealed

Rus.Destroyers to China

European Republics

Belarus Closes Newspaper

Unconstitutional Laws in Kiev

South Caucasus & Central Asia

Four Sides Meet in Baku

Adjaria's Constiution Amended

US-Uzbek Economic Ties

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Tuesday

November 25, 1997

Intercon's Daily

US Businesses Complains Russian Taxes High

· The participants of the Russo-American Business Elite Forum unanimously complained against Russia's taxation policy during their Saturday meeting with Prime Minister Viktor Chernomyrdin. The heads of the leading Russian (Rosprom-Yukos Group, Vympelkom, and Transaero) and American companies (Lockheed Martin, Boeing Company, Alcoa Company and Chase Manhattan Bank) claim that the present Russian tax laws do not allow them to make profits and do not stimulate business. Therefore, no western money will flow into Russia if its economy is not made attractive for the investors and if the numerous legislative tax laws are not perfected. Two reports were drawn up by western analysts, one deals with world economic development tendencies and the role played by the governments and the private sector in this process and the other looks into the possibility and prospects of the Russo-American relations, particularly in concrete economic sectors. The Forum also discussed problems linked with Russia's integration into the world economic community.

Business

Gazprom Deal Blue Stream Revealed

· The Russian gas monopoly Gazprom will today reveal the "Blue Stream" project which transports Russian gas to Turkey along the bottom of the Black Sea. The "Blue Stream" project, officials of the joint venture note, "... is a major foreign policy action, meeting the national interests of Russia, and its implementation will create favorable prerequisites for resolving the socio-economic problems of the Russian regions, lying on the coast of the Black Sea, and of Stavropol Territory." The total length of the gas pipeline, including its mainland and underwater sections, laid at the depth of up to two kilometers, will top 1,200 kilometers.

First Deputy Prime Minister Boris NEMSTOV will sign on Thursday, on behalf of the government, a new contract on trust management of the government's 35 percent stake by Gazprom. According to informed government sources, the new contract abolishes juridically raw points of the previous one and risks of the government's losses, and sets remuneration to Gazprom's president for trust management of the government's stake.

Gazprom, Zarubezneft sign Deals in Vietnam

· Gazprom's Rem VYAKHIREV and Petro Vietnam's Ngo THUONG SAN signed a protocol to cooperate in gas extraction off Vietnam's northern coast. The protocol plans cooperation in the construction of off-shore oil rigs and in the transportation of gas from existing fields. Zarubezneft's Oleg POPOV agreed with the same company to build Vietnam's first oil refinery, which will have an annual capacity of 6.5 million tons.

Rus. Destroyers Made with Missiles for China?

· Russia is building four destroyers to sell to China which may be armed with state-of-the-art "Yakhont" missiles designed to destroy aircraft carriers and other surface warships. The missile has a firing range of 300 kilometers that would allow the Sovremenny-class destroyers to strike coastal naval bases. "The Yakhont missiles substantially enhance the destroyer's striking power and make it invincible to the enemy," said a Naval statement. The missile reportedly flies at a low-altitude trajectory of 5-15 meters above the sea during the last 120 kilometers en route to a target. Each Yakhont has an artificial intellect. It independently selects and classifies the targets, depending on their importance, chooses the attack tactic and plan for its implementation. After destroying the main target within the squadron, the missiles attack the other ships according to the principle "one missile — one ship."

"No navy in the world has the means to combat this missile," Itar-Tass said. According to expert forecasts, the Yakhont will have no rivals on the world weapons market for the next quarter of a century. Military specialists regard the Yakhont as an optimal version for organizing dependable defenses by fifth-generation weapons for minimum financial spending. They have calculated that several warships, armed with Yakhonts, are capable of destroying at one blow any squadron on distant approaches, suffering no losses themselves.

Rosprom-Yukos to Appeal Tender Cancellation

· Rosprom-Yukos Group on Monday said it might appeal the decision to cancel the tender for a 34 percent stake in the Eastern Oil Company (VNK). The privatization auction for Eastern Oil Company was canceled on Monday as there was only one application filed. Rosprom-Yukkos learned that

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Intercon's Daily

Inkombank was also planning to bid on the shares but failed to timely transfer the required sum to support its bid. A decision on the possible appeal will be made jointly with investors, who have provided funds for the group's participation in the tender. Rosprom-Yukos head Mikhail KHODORKOVSKY believes the tender should be held once again within the next 45 days.

KHODORKOVSKY estimated VNK's actual price as amounting to $2 billion. That is why the holding's controlling package should cost around $1 billion. A package of 511,491,750 shares with nominal value of 2 rubles each was to be sold at the canceled auction. The starting price of the package was set at 2.046 trillion rubles. The winner in the tender would have to fund the investment of over $90 million and pay the debts of VNK subsidiaries' to the federal budget. VNK charter capital totals 3,008.775 million rubles. It incorporates the state-owned stock in a number of Siberian companies in oil and petrochemical sectors, such as the Tomskneft oil company, and Tomsk and Achinsk refineries among others.

demned the closing of Svaboda in a signed statement, which said, "A government and President which shut newspapers and radio and television stations because they have dared to criticize, or hold a different view of the state and its policy, show their weakness. By closing Svaboda the Belarus authorities have shown they are afraid. The history of totalitarian regimes demonstrates that fear is a bad advisor." This is the latest in a series of attempt by President LUKASHENKO to intimidate the open and free press. Earlier Russian journalists were detained for supposed border violations. This can only increase the resolve of groups such as Charter 97 which is seeking to build a democratic opposition to the LUKASHENKO government.

Parliamentary Laws Unconstitutional in Kiev

· President Leonid KUCHMA said a number of decisions adopted by the Crimean parliament run counter to the Ukrainian Constitution. KUCHMA told a reporter on Monday that Crimean legislators ignore the opinion of executive bodies of power and described their actions as "intentionally destructive." He warned Crimean lawmakers that some of their decisions are unconstitutional and that he has prepared draft decrees suspending various resolutions. The President urged the parliament to make decisions that comply with Ukrainian laws. Many experts agree that the failure of the President and the Ukrainian parliament to work constructively together remains the fundamental impediment stalling economic growth and attracting foreign investment.

South Caucasus & Central Asia

Four-Sides Meet in Baku

· Deputy Foreign ministers' from Georgia, Ukraine, Azerbaijan, and Moldova meetings opened in Baku on Tuesday to discuss regional and European matters, including economic cooperation among the four states and their participation in joint and international projects. Before the meeting, Azerbaijan's Foreign Minister Gasan GASANOV noted that Georgia, Ukraine, Azerbaijan, and Moldova could cooperate with NATO more effectively under the 16 plus 1 formula of the Partnership for Peace program, gradually broadening their political and military relations with the bloc. In other words, these states count on a special relationship with NATO similar to those which now link the Alliance with Russia and Ukraine.

European Republics

Belarus Closes Major Independent Newspaper

· The Belarus Supreme Commercial Court, acting on President LUKASHENKO's behalf, ordered the largest independent newspaper Svaboda (Freedom) to be closed. The Newspaper will be stripped of its registration certificate and fined one million Belarus rubles ($37). Valery TOLKACHEV said the court had ordered Svaboda's closure after warning it three times about "various violations." "This is not the suffocation of freedom of speech and opposition. The President thinks the opposition and opposition media must act within the framework of this country's laws and be objective," said TOLKACHEV. LUKASHENKO continues to clamp down on media and political opposition, after winning sweeping powers in a vote a year ago.

Editor-in-chief Igor GERMENCHUK responded, "The present authorities view the independent media as the main threat which provokes people's outrage. We understand the court's decision is a political order. We'll try to open a new newspaper or publish illegally. They will not silence our voice." Five editors from Central and East European newspapers con

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GASANOV views this as a reliable guarantee of a settlement of conflicts and crisis management in the region. A Georgian-Ukrainian-Azerbaijan-Moldavian alliance (GUAM) was formed in Strasbourg last month during a European Union summit after Presidents from these nations adopted a joint document expressing their strategic interests.

Adjaria Constitution Amended

· The Supreme Soviet of Georgia's autonomous Adjar Republic voted to amend the regions constitution to provide for the creation of the post of ombudsman and a Constitutional Court, reported RFE/RL Newsline. The opposition Party of National Ideology in Georgia issued a statement condemning the amendments, which they claim endow Adjar Supreme Soviet Chairman Alsan ABASHIDZE with "virtually unlimited powers" and increase Adjaria's status to almost that of an independent state. ABASHIDZE on Monday dismissed the internal affairs ministers and his deputies because of a recent increase in crime. ABASHIDZE will take over as acting interior minister in addition to his chairmanship of the Supreme Soviet. Opposition appears to be growing in Adjaria over a lack of continued economic progress and increasing autocratic rule. Opposition deputies to ABASHIDZE's rule within the Georgian Parliament have become increasingly vocal against these trends. Because of this, ABASHIDZE recently accused the Georgian parliament chairman of attempting to orchestrate an overthrow of his power. These accusations were vigorously denied by the Georgian Chairman of the parliament Zurab ZVANIA.

US-Uzbek Economic Ties

· Uzbek Prime Minister Utkur SULTANOV announced after talks at the US State Department on Monday that the first session of the US-Uzbek commission for political, economic and technological cooperation is planned for February, 1998, in Washington. The aim of the commission is to promote development of bilateral relations between the two nations in the political, military, trade invest

ments and energy sectors. During his visit, SULTANOV met with Deputy Secretary of State Strober TALBOTT, Energy Minister Federico PENA and Director of Agency for International Development Brian ATWOOD. The Uzbek prime minister called on US business representatives, at a Department of Commerce conference, to step up investments in the economy of Uzbekistan and joint ventures. Uzbekistan seeks to create the image of a stable and reliable partner which pays its debts and encourages investments to make its economy viable, SULTANOV stressed. The main drawback for investors is the convertibility and repatriation of profits made by foreign investors through joint ventures. The premier noted this was caused by shortages of hard currency which compelled the government to impose restrictions on imports of consumer goods from abroad, including imports licensing.

On US relations, he said that in recent years the trade turnover between the two countries had increased sevenfold, exceeding $700 million. The volume of direct US investments into the Uzbek economy reached $800 million, excluding exports financing. Joint projects worth $2 billion are being considered by the two countries, the Uzbek premier said.

Azerbaijan Hopes to Strengthen Western Ties

· Azerbaijan's Foreign Minister Hassan HASSANOV said on Monday that Azerbaijan hopes to join the Council of Europe (CE), the European Union (EU) and NATO. HASSANOV believes membership to the CE may come in the near future, but realizes that membership to NATO will take longer. The western policies Azerbaijan has chosen have saddened Iran and Russia, but as an independent nation, Azerbaijan will not be affected by any sphere of influence in its foreign affairs, he said. On Azerbaijan's economic development, HASSANOV wants foreign countries to increase their investment in its oil industry to help create job opportunities and achieve prosperity. Without giving up its oriental cultural background, he noted, Azerbaijan hopes to pipe its crude oil to the West European markets through Turkey, Georgia and Ukraine.

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

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