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

Wednesday, December 17, 1997

Russian Federation

Politics

Budget and Tax Commission Meets

· The Russian Budget and Tax commission known as VChK Tax commission met today behind closed doors, chaired by First Prime Minister Viktor Chernomyrdin. The agenda has not been officially announced. However, the government said the commission would probably discuss the arrest of the property of the Omsk Oil Refinery and Angara Oil Petroleum Company, which are heavily in debt, and sell it to other owners. The cost of assets of the Omsk plant was estimated by experts at around five trillion rubles and its overall debt at 470 billion rubles. The assets and debts of the Angara oil petroleum company were estimated at 8 trillion rubles and 707 billion rubles, respectively. Konstantin POTAPOV, the acting chairman of the board of directors of Sibneft Oil Company announced that the Omsk governor Leonid POLEZHAEV has asked YELTSIN not to seize the Omsk Oil Refinery's assets. Sibneft, part of Boris BEREZOVSKY's business empire, owns the Omsk refinery. Sidanko, owned by Uneximbank, controls the Angara company.

The VChK Tax Commission is also to review the problem of paying back wages to servicemen. The overall debt to servicemen owed by the state makes up 12.4 trillion rubles, including 5.8 trillion rubles due to be paid as welfare subsidies and other payments to the personnel; 4.6 trillion rubles owed to civilian personnel of the Armed Forces and 2 trillion rubles as outstanding debt to cost-accounting enterprises and construction companies.

Primakov-Albright on START-II

· Russian Foreign Minister Yevgeny PRIMAKOV told US Secretary of State Madeline ALBRIGHT today that he hoped the Russian parliament would

ratify the START II strategic arms pact early next year. Some Duma members say the treaty is unfavorable to Moscow and ratification has been slowed because of anger over NATO's planned expansion. ALBRIGHT said that it was necessary for Russia to pass START II before the projected summit between US President Bill CLINTON and Russian President Boris YELTSIN can focus on START III talks.

Economy

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

Ruble = 5,943/$1.00 (CB rate)

Ruble = 5,923|5,963/$1.00 (buy|sell rates)

Foreign Debt Compared with Russian Exports

· Deputy secretary of the Russian Security Council Alexander AGEYENKOV said the foreign debt of Russia, including former Soviet Union debts, is almost twice as high as the annual volume of Russian export, which places the country among the largest debtors in the world, reported Itar-Tass. The situation in the Russian economy necessitates a sharp rise in state activities to protect national interests of the country in order to ensure economic security. Even the improved economic situation is not enough to erase five years of negative trends in the Russian economy that affected the national interests.

For instance, the volume of the gross domestic product dropped by nearly 40 percent over the past five years, industrial production by nearly 50 percent and agricultural output by 35 percent. The 1.5 per

Today's News Highlights

Russia

Russian GDP Increases

Duma Meets With Businessmen

Gazprom in Georgia

European Republics

Ukraine Destroys Nuc-Missiles

Lithuanians Can Vote by Mail

South Caucasus & Central Asia

Georgia Can Protect Sea Border

Armenian Foreign Invest.Figures

Tajikistan Recieves WB Loan

Politics-Economics-Business

Page

Wednesday

December 17, 1997

Intercon's Daily

cent growth in industrial production, achieved in 1997, and a planned 2-3 percent rise for 1998 are far from meeting the task of, "pulling the Russian economy out of the dangerous zone," the deputy secretary emphasized. He stated that the unsatisfactory state of the financial and budget sphere is the main factor, negatively influencing the economic situation in the country. Nearly 50 percent of industrial enterprises are now loss-making. In AGEYENKOV's opinion, if current trends continue, Russia would need to make a priority exporting fuel and raw material resources, for revenues which the country could use to import machine-tools, equipment and consumer goods.

Russian GDP Increases

· The State Committee for Statistics reports that the Russian gross domestic product (GDP) amounted to 2,420 trillion rubles over the past 11 months, which is an increase of 0.3 percent compared with the same period of 1996. Industrial output grew by 1.7 percent. Services continue to be prominent in the GDP (49 percent), while the share of commodities was 40.2 percent. According to the information, the medical industry showed the highest growth rate between January and November of 15.5 percent. The printing and metallurgical industries also showed good performance. The making of glass and china and building materials industries declined by 4.5 percent.

Economic Plans for Future Stability

· Following a meeting with German Economic Minister Gunter REXRODT, Russian Economic Minister Yakov URINSON expressed confidence that the Russian economy is stabilizing. The Russian government has proved it possesses the right tools to regulate economic processes in the country, he stressed. The Russian minister also said Moscow plans a stage-by-stage minimization of state guarantees of Russian import beginning from 1998. "State guarantees are supposed to be partially replaced by other pledges recognized in foreign countries, including guarantees of a number of Russian banks."

In an initiative supported by YELTSIN, Germany's federal authorities and businessmen, 40 Russians will be trained on the job in Germany's largest companies and business schools.

Duma Speaker Meets with Businessmen

· Speaker of the Duma Gennady SELEZNYOV met with 50 leading bankers and entrepreneurs of Rus

sia on Tuesday to focus on the legislative provision of the Russian national market and a better work of the parliament in the tax, budget and financial spheres. SELEZNYOV believes that this type of dialog is useful. "It is very important to find a way out of the most complicated socio-economic situation our country is in. That is why, a constructive dialog between law makers and businessmen to work on these laws is so important." Acting head of the Duma budget committee Alexander ZHUKOV said, "Such meetings are very useful and tradition of consultations between entrepreneurs and parliament members will be continued in future."

Business

Russia Predicts Increase in Oil Output

· Russia's deputy fuel minister Valery GARIPOV announced Tuesday that the national oil output is expected to increase by 21.9 million barrels this year or 1 percent, reported the Wall Street Journal. Oil exports are unlikely to match increases in output, but petroleum exports are expected to rise significantly, since petroleum is not restricted by pipeline problems, said energy specialist from Moscow's CenterInvest Securities Ivan MAZALOV. The increase is modest compared with global standards, but the increase for Russia marks the end of a slump in production. Stephen O'SULLIVAN, a senior oil analyst at MC Securities in London, said, "We've seen the end of the decline. But to sustain growth over the long term, Russian oil companies will have to increase investment." O'SULLIVAN suggests that the investment should be put into production, as those that have already invested in production are seeing the benefits. Many Russian oil companies find themselves without the proper equipment to squeeze oil from unproductive fields and resources. In order to re-emerge as a world oil power, Russia will have to pass more liberal tax laws making oil investment more feasible and oil companies will need to form strategic alliances with deep-pocketed Western partners.

Aluminum in Russia Increases

· General director of the Kontsern Alyuminiy Producers' Group Igor PROKOPOV said, Russia is expected to produce 2.90 million tons of primary Aluminium in 1997, which is up one percent over 2.87 million tons in 1996. Russia output of alumina, the main raw material used in aluminum production, will

When you need to know it as it happens

Politics-Economics-Business

Page

Wednesday

December 17, 1997

Intercon's Daily

rise seven to eight percent over 1996 tonnage. PROKOPOV predicts that, "Next year, if there is an increase, it [aluminum production] will be about as big as this year." However, he predicts that alumina production in 1998 will be slower than 1997 levels. The British Trans World Group (TWG) controls a significant share of Russia's aluminum business, holding 54 percent of the Bratsk Aluminum Factory, more than 20 percent of the Novokuznetsk Aluminum Factory, 32 percent of the Novolipetsk Metalurgical Combinate, 18 percent of the Sayansk Aluminum Factory, 13.4 percent of Magnitogorsk Metallurgical Combinate, 11 percent of Krasnoyarsk Aluminum Factory, and 12 percent of Novosibirsk Electrode Factory. TWG is facing challenges to it holdings, as Russian directors seek greater independence. Russia is the world's largest exporter of aluminum.

Gazprom in Georgia Discuss Gas Exports

· A delegation of Russia's gas giant Gazprom led by Gazprom board chairman Rem VYAKHIREV arrived in Tblisi today to discuss multifaceted cooperation and prospects for using the Georgian corridor to increase Russian gas exports in the southern direction. Experts believe that a new major pipeline may be built in Georgia to export Russian gas to the Middle East in the future. The sides plan to also discuss a project to build a new deep-sea gas pipeline to be built on the bottom of the Black Sea to transport Russian gas to Turkey. But the focal point at the talks will be a concept of multifaceted cooperation in the field of power engineering which is expected to be signed in the beginning of 1998.

zation and six former member states of the Warsaw Pact, Ukraine is allowed to have 4,800 tanks and 5,050 armored vehicles in its arsenal.

Ukraine-Germany Military Cooperation

· Ukrainian Defense Minister Alexander KUZMUK and German counterpart Volker RUEHE signed an agreement in Bonn on Tuesday to strengthen military and technical cooperation. During the talks, RUEHE and KUZMUK discussed military, political and technical cooperation including the creation of a new European security architecture and relations between Ukraine and NATO. The first concrete step to implement the agreement could be possible cooperation by the European Airbus Industry consortium, Ukraine and Russia to jointly develop and manufacture a large military transport aircraft, dubbed the Future Transport Aircraft, the German defense ministry said in a statement. Germany was expected to invite 20 Ukrainian officers for military training in Germany next year.

Lithuanians to Vote by Mail for President

· The Lithuanian voters who are unable to go to the polls for the presidential election to take place on December 21, will be permitted to send their ballot papers to the appropriate polling station by mail. Mail services will accept ballots from December 16 to December 18. The Central Electoral Commission has more than 2.6 million voters have officially registered for the elections. Since the ruling, three percent of the registered voters have opted to vote by mail service. Seven candidates are contesting the presidential office: incumbent Algirdas BRAZAUSKAS, former deputy prosecutor general Arturas PAULAUSKAS, US citizen Valdas ADAMKUS, parliament speaker Vytautas LANDBERGIS. The winner must collect one-third of the ballots cast by all the registered voters in Lithuania. If that does not happen, another round will be held in two weeks later to run off the top two candidates. A simple majority will then determine who will become the President.

South Caucasus & Central Asia

Georgia Ready to Protect its Sea Borders

· Georgian President Eduard SHEVARDNADZE said that Georgia is ready to protect the sea border on its own. The Georgian sea zone is now controlled by Russian border guards, although there is no an

European Republics

Ukraine Destroys Nuclear Ballistic Missiles

· A senior Ukrainian military official said Tuesday that Ukraine has destroyed 68 SS-19 intercontinental ballistic missiles (ICBMs) and 107 ICBM launchers. Nikolai GONCHARENKO, director of the inspection center of the armed forces, said Ukraine plans to further destroy 62 missiles and 20 launching devices for SS-24 ICBMs. Under a joint statement signed by Russia, the United States and Ukraine in 1991, Ukraine should destroy all the 180 SS-19 and 46 SS-24 missiles deployed within its territory by the former Soviet Union. According to the treaty signed between the 16-nation North Atlantic Treaty Organi

When you need to know it as it happens

Politics-Economics-Business

Page

Wednesday

December 17, 1997

Intercon's Daily

intergovernmental agreement to the effect, the president said. "If the Russian border guards leave Georgia, Georgian border guards have enough means and well trained personnel to control the sea zone." The President said that the problem Georgia has is equipping the Coast Guard with the proper ships, instruments, and specialized units to tackle problems that occur in its waters. Commenting on the situation on the Daryal section of the Georgian-Russian border, he said the Russian border guards, "substituted the country's political leadership" by their unilateral actions. "The establishment of a border is not a competence of border guards, such questions are usually solved at intergovernmental negotiations with the participation of diplomats, servicemen and scientists," SHEVARDNADZE said.

US Role in Abkhazia

· US President Bill CLINTON expressed the readiness of his country to play a more active role in the Georgian-Abkhazian settlement and noted a considerable role of Russia in that process, Georgian President Eduard SHEVARDNADZE said at a news conference in Tbilisi on Tuesday. SHEVARDNADZE believes that, "after thinking hard the United States concluded that it should the most actively participate in the conflict settlement together with Russia." In response to whether he believes that Russia peace keeping operation in Abkhazia has failed, SHEVARDNADZE said, "I think there is no need to say that so far, because the Americans and our Western partners believe that the Russian participation is an important factor of the Abkhazian conflict settlement and we in Georgia must take this opinion into account."

Armenian Foreign Investment Figures

· The Industry of Trade Ministry announced that direct foreign investment is expected to total $70-80 million by the year's end. Most of the investment is divided between privatized telecommunications company Armen Tel, Coca-Cola Bottlers Armenia, Midland Bank Armenia, and the Armenian-US joint venture Global Gold Armenia. Russia is the most

important investor followed by Iran, United States, France, Georgia, Germany and Syria, reported RFE/RL Newsline.

Uzbek-Russian Airline Cooperation

· The Russian Transaero air company's Alexander PLESHAKOV and Uzbekistan Khavo Yullari's (Uzbek Airlines company ) Arslan RUZMETOV on Wednesday signed document as "CIS Alliance," keeping the agreement open for other CIS countries to join. The agreement serves two tasks: to restore partnership relations between representatives from important sectors of science, industry and transport, which were lost over the past few years and to raise efficiency of the airlines' operation: increase the number of passengers and freight loads, effective competition with foreign air carriers as well as higher safety of flights and quality of service. Head of the Interstate Aviation Committee Tatyana ANODINA said, "this event means not just an emerging trend but already a principle which is being realized by pooling efforts of major air companies, industrial and transport enterprises, which provides an opportunity to achieve the development of these hi-tech industries at higher rates."

Tajikistan Receives WB Credit for "Safety Net"

· The World Bank on Tuesday approved a $10 million Post-Conflict Rehabilitation Credit to meet Tajikistan's budgetary needs. The World Bank press release said that the credit will provide noninflationary financing for the budget and enable the government to purchase imports needed to support the social safety net, and to restore production, employment, and consumption in the country's post conflict economy. The government plans to use the credit to reduce arrears for the social safety net throughout the country and to finance expenditures related to the resettlement of refugees, displaced people, and demobilized soldiers.

Following Soviet Union collapse, civil war broke out causing 50,000 people to die, 600,000 people displaced inside the country and half a million Tajiks fled to neighboring countries.

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

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1997, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page