DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, December 16, 1997

Russian Federation

Politics

Conference on Federalism in Russia

· The International Conference on the Development of Federalism in Russia opened in Moscow today. The conference is a joint program of the Russian Federation and the Council of Europe. The European Commission, the Russian Ministry for Nationalities and Federal Relations, the International Academy of Regional Development and Cooperation will attend the conference on federalism. Participants will debate the development of Russian statehood as power-sharing and conclusion of agreements between the federal authorities and subjects of the Federation, budget federalism, interregional integration and organization of executive authorities at federal and regional levels, and the role of judiciary bodies in the development of federalism.

Mostovoi Appointed Vice President of ALROSA

· Former Federal Bankruptcy Service chief Pyort MOSTOVOI has been appointed first vice president of the Almazy Rossii-Sakha (ALROSA) diamond company. With his new appointment, MOSTOVOI will increase CHUBAIS' influence over Russian diamond exports, a major source of budget revenues. MOSTOVOI was dismissed as head of the insolvency service in the wake of the CHUBAIS book scandal. MOSTOVOI, also an author of the Russian privatization book, received $90,000 advance fees for his part. Before the sacking, Mostovoi represented the government in the ALROSA supervisory council and was one of its three co-chairmen.

Chechen Veterans Families Receive Assistance

· Chechen President Aslan MASKHADOV ordered the government to set up a committee in charge of providing housing, employment, and medical treatment to fighters and their families who participated in

the 21 month war with Russia. According to Chechen statistics 8,200 Chechen fought in the war and 2,800 were killed. 3,000 former fighters have already been enrolled in schools to gain skills for employment.

Economy

Ruble = 5,939/$1.00 (NY rate)

Ruble = 5,941/$1.00 (CB rate)

Ruble = 5,921|5,961/$1.00 (buy|sell rates)

Economic Reform Center Established

· Russian Prime Minister Viktor CHERNOMYRDIN approved a government decision Monday to establish a governmental working center for economic reform. The center will analyze the country's economic developments and reforms, provide information regarding the feasibility of governmental economic policies, and introduce reforms and policies to the news media. The center will also analyze reform proposals made by other government groups and social organizations and evaluate their concepts and plans. Moscow hopes the center will provide the information and resources which President YELTSIN said Russia lacked during the financial market crisis.

Russian Economy Predicted to Rebound

· Many analysts predict that Russia will rebound twice from the recent turmoil that struck financial markets and may come out in better shape than most emerging market countries. Since the International Monetary Fund (IMF) recommended to continue install

Today's News Highlights

Russia

GeoQuest-Territorial Data Bank

Gazprom Cancels $750M Loan

European Republics

Ukraine -Greece Agreements

728 Case of Privatization Fraud

Ukraine-Uzbek Trade Doubles

South Caucasus & Central Asia

Georg. Parliament on CIS

Turkey Bans Transport of Oil

Kazakh Pres. Promotes Russian

Politics-Economics-Business

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Tuesday

December 16, 1997

Intercon's Daily

ments of a $10 billion loan, investors are gaining confidence in Russia's treasury bills and the stock market. Senior emerging market analyst for Morgan Stanley Dean Witter, Discover & Co. Eric FINE says that the market crisis has highlighted, "not the weakness of Russia's finances but the weakness of the investors who hold Russian debt," reported the Wall Street Journal. The dollar denominated external debt and the ruble-denominated Russian government treasury bill debt are the two Russian debts that have been hit during the crisis. FINE and other analysts predict two rebounds for these debts. The first is a correction that brings the debt more in line with other nations of similar credit risk. The second may occur when Russia resolves its budget debate.

The foreing exchange rate, government T-Bills, and the stock exchange all seem to be recovering after weeks of uncertainty. First Deputy Prime Minister Anatoly CHUBAIS is confident that Russia will grow again next year, proposing a 2 percent growth in the GDP for 1998. He even feels that the crisis may yield Russia some gains. "Russia could emerge from the stock exchange and financial crisis in the world with some gains, thanks to the redistribution of world financial resources." Whether Russia emerges with gains or not, the state of the economy rests with the government negotiations on the 1998 budget. Finance Minister Mikhail ZADORNOV noted that the crisis has lead to an increase in the cost of debt servicing. He believes that changes in the budget, which may shift borrowing from expensive domestic to cheaper foreign borrowing, will make a significant difference.

Russian Economy Needs Foreign Capital

· Russian First Deputy Foreign Minister, chairman of the Consultative Council of Russian subjects for international and external economic relations at the Russian Foreign Ministry Igor IVANOV said that attracting foreign capital to Russian regions is one of Russia's foreign policy top priorities. IVANOV says that Russian diplomatic ties will help foster economic ties and contracts providing foreign capital. The Russian Foreign Ministry is going to promote the cooperation with foreign countries in investment to instill Russia's image as a country interested in receiving foreign capital investment. However, successful work with foreign investors in Russia is hampered by imperfections in the investment and tax

legislation and insufficient coordination of actions between Russian structures.

Business

Gazprom Cancels US Ex-Im Bank $750M Credit

· Russia's gas giant Gazprom has canceled a November 1994, memorandum of understanding on Friday with the US Export-Import Bank, due to criticism from the US Congress over the natural gas deal with Iran. The 1994 document set a $750 million ceiling on the US credit agency's support of Gazprom projects involving US companies. A spokesman for the bank confirmed that the Ex-Im Bank Chairman James HARMON received a notice of cancellation, reported the Dow Jones Newsline.

GeoQuest Established Territorial Data Bank

· GeoQuest announced on Monday it signed an agreement with the Administration of Yamal-Nenetsky Autonomous Okrug in Russia to establish the Territorial Data Bank for production, geological and geophysical data from the state. GeoQuest won the contract from an international tender which began this summer. Deputy Governor of the Yamal-Nenetsky Region I.L. LEVINSON said, "We selected Schlumberger GeoQuest as they offered the best technical solution for the administration of information management of natural resources in our region." GeoQuest will provide software, hardware, training and technical support to set up the Territorial Data Bank. Among the companies operating in the region are Gazprom, NoyabrskNefteGaz (Sibneft), PurNefteGaz (Rosneft) and others. More than 30 MT of oil and 0.5 trillion cubic meters of gas per year are produced from this region.

GeoQuest, an operating unit of Schlumberger, is the industry leader in providing integrated software systems, data management solutions, and processing and interpretive services to petroleum companies in optimizing the value of their oil and gas reservoirs. GeoQuest operates 111 data services centers and software support offices in 58 countries.

Russia Will Complete Vietnam Aircraft Contract

· Russia pledged its commitment to complete the aircraft agreement with Vietnam, despite the crash of a plane with parts of Su-27 fighters on board which Vietnam had purchased from Russia. Director of Russia's Aviation Military and Industrial Complex

When you need to know it as it happens

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(AMIC) Sukhoi Alexei FYODOROV said that according to the contract signed, Vietnam is to receive four Su-27BK training fighters, two Su-27SK combat aircraft, and equipment before the end of the year. Two of the Su-27BK training planes were transported by a Ruslan cargo plane which crashed over Irkutsk in Siberia earlier this month, FYODOROV said. Vietnam is considering to buy Su-30K multi-purpose aircraft instead of the original Su-27BK's.

Russian Co. to Modernize Plant in India

· Russia and India have agreed to cooperate in modernizing India's metallurgical plant located in

Burnpur city. The Russian company Tyazhpromeksport will be the main supplier of the latest technology and equipment to the metallurgical plant owned by the Indian Iron and Steel state-run Company. Secretary of the Indian ministry of steel and mines Anil Basu said that India is interested in further cooperation with Russia in modernizing and developing the national metallurgical industry. Contacts with Tyazhpromeksport help India acquire high quality technological equipment of world standard at a comparatively cheaper price, than offered by companies of Great Britain, Japan, Germany and other western countries.Tyazhpromeksport is one of the few Russian organizations, which has not only maintained its position in India, but has also joined in fulfilling new orders. The Russian embassy in New Delhi said that issues related to Russia and India cooperation in the sphere of ferrous metallurgy will be discussed at the session of the Russian-Indian intergovernmental commission for trade and economy, science and technology and cultural cooperation, which is scheduled to be held on December 17. Russian First Deputy Prime Minister Anatoly CHUBAIS will lead the Russian delegation. CHUBAIS will also discuss with Indian leaders the proposal of building in India of the nuclear power station Kudankulam with Russian assistance.

President Constantinos STEPHANOPOULOS stated that, "there are neither political nor economical disagreements" between Ukraine and Greece. Ukrainian trade with Greece is expected to rise from $100 million a year, if Greece completes its pledge to purchase ships built in Ukrainian shipyards. Most of this trade is transported via Azerbaijan,Georgia and the Black Sea region. President Leonid KUCHMA said he wants to see the Black Sea as a zone of peace and stability not conflict. KUCHMA said, "Ukraine will do everything possible in order to lessen military confrontation in this region." During his three day visit, the Greek president will also meet with Ukrainian Prime Minister Valery PUSTOVOITENKO.

728 Privatization Fraud Cases in Ukraine

· Ukraine's Interior Ministry has discovered 728 cases of fraud connected with its privatization process since January. Sergei PUGACHEV, head of the ministry's main department for combating economic crime, said abuse of office and forgery were the two sources of corruption most damaging to the privatization program. Other common crimes were overstating the debts owed to companies undergoing privatization, and understating the value of companies' basic assets.

Ukraine-Uzbekistan Trade Doubles in 1997

· Economic adviser in the Ukrainian government Dmytro BOZGOK said Ukraine and Uzbekistan traded $258 million of goods in the first nine months of this year, which is almost double the figure recorded for the whole of 1996. He said Ukraine's 30 joint ventures with Uzbekistan contributed to the rise in trading activity. New joint manufacturing ventures in light industry, the food industry, tire manufacturing, the oil and gas industry and the aerospace industry should in 1998 contribute to a further rise in Ukraine's trade turnover with Uzbekistan, BOZGOK predicted.

South Caucasus & Central Asia

Georgian Parliament Reviews CIS Membership

· The Georgian parliament has set up a commission to review whether it is in Georgia's interest to remain a member of the Commonwealth of Independent States (CIS) by an irregular meeting which was convened on the motion of 74 deputies. The depu

European Republics

Ukraine and Greece Sign Agreements

· Ukraine and Greece on Monday signed intergovernmental agreements on air services between the two countries, and on the development of economic, scientific, technical and agricultural cooperation, as well as a protocol on consular relations. In a joint statement, President Leonid KUCHMA and Greek

When you need to know it as it happens

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ties oppose the Russian peacekeeper troops in Abkhazia. They are for the withdrawal of Russian peacekeepers from Georgia and, "concrete measures for the restoration of territorial integrity of Georgia," referring to the secession of its Abkhazia province.The opposition members say that, "Russia is trying to assert its supremacy in the territory of the former USSR," and that the CIS membership, "has not given Georgia anything." The parliament without debate voted for a draft resolution on which sets up four commissions that are to report in four months the effectiveness of the CIS, Organization for Security and Cooperation in Europe (OSCE) and the UN in mediating the Georgia-Abkhazia settlement, Georgia's participation in these international organization, and the status of Georgian border guards training. Other commissions are to review the progress of Georgia's building its armed forces and rational use of relief funds for refugees from Abkhazia and the South Ossetia enclave.

Adjarian Leader Praises Rus Border Guard Role

· Parliament chairman of the Adjaria Atonomous Republic Aslan ABASHIDZE praised Russian border guard and servicemen stationed in Adjaria saying they guarantee regional stability. In his words, the presence of Russian servicemen in Adjaria helped the republic to prevent, "a fratricidal civil war which was in Abkhazia and other regions of Georgia, as well as in some countries on the post-Soviet space."

ABASHIDZE stated he is sure that, "nationalism is doomed." He stressed that mutual interests are adequate and solid economic relations and friendships with Russia are very important for Georgia.

Georgian Minister in Japan

· Georgia's Minister of State Niko LEKISHVILI and a delegation which includes Minister of trade and Foreign Economic Relations Konstantin ZALDASTANISHVILI, President of the Georgian Oil Company Georgi CHANTURIA and Governor of the United Georgian Bank Vano CHKHARTISHVILI left today for Japan to expand business ties between the two countries. According to LEKISHVILI, an accord

has already been reached with Japanese companies to build an oil refinery near Supsa on Georgia's Black Sea coast, reconstruct of Batumi's refinery and build a number of thermal power stations in Georgia. He also plans to discuss with Japanese partners the possibility of producing TV sets, small-size accumulator batteries, and other electronic devices in Georgia. Japanese businessmen expressed an interest in the Rustavi metals works.

Turkey Bans Transport of Oil Through Straits

· Turkey has decided to ban the transport of Caspian oil through the Turkish straits. Turkish State Minister Metin GURDERE was quoted by reporters as saying that transporting oil through the Straits might not only endanger the residents in Istanbul, the largest city in Turkey, but also pollute the environment of the city, which is a famous historical and cultural center. The Turkish Straits is now a major route to transport oil and other oil products from the Black Sea countries to the European markets. GURDERE agrees with US officials that the most economical and practical route is to transfer the Caspian oil via the Baku-Ceyhan pipeline.

Kazakhstan Pres. Promotes Russian Lang.

· Kazakh President Nursultan NAZARBAYEV strongly opposes any attempts to cut back the use of the Russian language in Kazakhstan. He believes that Kazakhstan will serve as an economic and cultural bridge among three rapidly developing regions of the world—Russia, China and the Moslem world—while remaining a multinational state. The President noted that young men and women in Kazakhstan should learn and use three languages: Kazakh, Russian and English, adding that the status of the Kazakh language as the state language should be introduced carefully, gradually and continuously. Teaching in secondary schools in the republic is currently conducted in 15 different languages. Theater productions are available in five languages, while mass media use 11 languages.Todayin the new capital of Akmola, Kazakhstan celebrates the sixth anniversary of its independence.

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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