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

Friday, December 19, 1997

been dropped from the Commission. The Presidential deputy chief-of-staff Mikhail KOMISSAR has been appointed Deputy Chairman of the Council for interaction with religious alliances. Deputy Finance Minister Yury MOSHKIN has been included in the Council. Maxim BOIKO, Konstantin BURAVLEV, and Lev SUKHANOV have been dropped from the Council. YELTSIN has appointed Vasily SIDOROV to be the permanent envoy of Russia to the UN European headquarters and other organizations based in Geneva.

Duma Adopts Excise Tax Amendment

· The Russian State Duma today adopted an amendment to the excise duties law which will place a tax on ethyl alcohol, alcohol-containing products, alcoholic drinks, beer, tobacco goods, jewelry, automobile petrol and cars, with the exception of hand-control cars for the disabled. Specifically, the excise duty on water-free 100 percent alcohol 12 denominated rubles per liter, beer 60 kopecks per liter, smoking tobacco 60 rubles per one kilogram, cigarettes with filters 17 rubles per 1,000 pieces. The excise duty on jewelry 15 percent, on automobile petrol with the octane number under 80 will be 290 rubles per ton, and on petrol with other octane numbers 370 rubles per ton.

S-300 Delivery to Cyprus Placed on Hold

· Russian Foreign Minister Yevgeny PRIMAKOV during NATO talks in Brussels this week revealed that Russia was halting the sale of anti-aircraft S-

Russian Federation

Politics

Nikolayev Resigns/Dismissals/Appointments

· Even while Russian President Boris YELTSIN rests in a sanatorium outside of Moscow, the Russian government reshuffles. YELTSIN's press office reported on Thursday that Director of the Federal Border Service Andrei NIKOLAYEV's resignation has been submitted his to YELTSIN. The President complied with the request and signed a decree appointing Colonel-General Alexander TYMKO acting Director of the Federal Border Service of the Russian Federation. This "changing of the guard" is clearly linked to the Russian capitulation of land at the Georgian the border check point at Verkni Lars, Defense Minister SERGEYEV's removal of some of NIKOLAYEV's troops as part of defense restructuring, and NIKOLAYEV's own remarks about Georgia which have been in variance with Russian foreign policy. TYMKO will have to harness the might of Lieutenant-General Yevegeny BOLKHOVITIN commander of the Caucasian special frontier. NIKOLAYEV's removal will probably have a positive effect on a number of issues, especially the border dispute with Russia.

On Thursday, YELTSIN dismissed General Viktor PRUDNIKOV, the commander-in-chief of the Russian Air Defense Force. On Wednesday, he also dismissed Colonel-General Aleksandr CHINDAROV and Lieutenant-General Viktor SOROKIN, the first deputy commander of the Airborne Troops.

YELTSIN has appointed by decree deputy chief-of-staff of the presidential administration Viktoria MITINA to deputy chairwoman of a presidential commission to be a liaison between the federal and state authorities of the component parts Russia's constitutional-legal. She replaces Alexander KAZAKOV, who has

Today's News Highlights

Russia

New Gov't Reps. to Gazprom

Bratsk Aluminum Plant to Expand

European Republics

Rus. Defense Minister in Minsk

Belarus Pres. Meets Berezovsky

Estonian 1998 Budget Passes

South Caucasus & Central Asia

Georg-Rus Defense Mins. Meet

EBRD Loans Turkmen-Belarus

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

Ruble = 5,945/$1.00 (CB rate)

Ruble = 5,922|5,968/$1.00 (buy|sell rates)

opportunities; their full realization requires persistence on the part of the Government and strong support of the donor community." The restructuring loan is aimed at assisting the government in five areas: "natural" monopolies, private sector development, fiscal management, banking reform, and trade policy reform. The loan will be delivered in two equal portions. The first one is due in this December while a loan decision on the second half will depend on whether Russia improves tax collection to match IMF and WB requirements. The WB loans will stimulate the cash-strapped government in its efforts to pay off trillions of rubles in wage arrears by the year's end.

The coal loan will focus on projects which will strengthening the effectiveness and transparency of delivering subsidies to targeted groups and on accelerating the privatization of viable coal companies. This loan will be given in three installments, with the first $400 million to reach the Russian budget before January. The second and third portions, called privatization and social installments, will be granted in the course of 1998 but exact dates are to be fixed depending on Russia's reform progress in the coal industry. The reform BUGROV said, "implies change of controls of the industry, privatization of coal mines and soothing social problems caused by restructuring and shutdown of coal mines, in particular."

Will the Financial Market Recover? When?

· While some economic analysts are already praising Russia's ability to weather the global economic storm, board chairman of Mosbusinessbank Viktor BUKATO believes Russia will overcome the storm no earlier than in May or June, 1998. According to BUKATO, the financial situation in Russia will be, "rather complicated" as the new year begins with new rubles. First Deputy Prime Minister Anatoly CHUBAIS earlier this week said that the country might come out of the turmoil with gains. "It is absolutely clear that the Russian corporate securities market is undervalued," reported the Financial Times. In a Salmon Smith Barney report, Russia is described as, "the most attractive value play in the European emerging markets context" with "relatively inexpensive" share with a price/earnings ratio that is around a third lower than the global emerging markets average." With loans from the IMF to resume, state workers wage arrears to be paid, economic forms to be instituted, and foreigners ready to invest

Jul Aug Sep Oct Nov Dec

300 rocket systems to the Republic of Cyprus. This comes on the heals of the European Union's expansion decision to set a date for accession negotiations with Cyprus, while snubbing Turkey's application. PRIMAKOV said the anti-aircraft S-300 rocket systems, "do not have elements which would be aimed against Turkey." Russia selling motivation appears to be financial and not an attempt to create disputes within NATO. According to Cypriot sources, the cost of the missiles is $200 million with the Nicosia government having already paid a $20 million down payment. The Cyprus embassy in Washington said, "We have a contractual arrangement with Russia. We expect it to be fulfilled but we are willing to suspend all arms purchases if there is agreement on demilitarization."

Economy

Russia Receives $1.6 Billion WB Loan

· The World Bank's (WB) board on Thursday approved the release of two loans worth of $1.6 billion to Russia for restructuring the economy and a coal loan, said the bank's Russian executive manager Andrei BUGROV. Both loans are the second of their kind released to Russia. World Bank vice President for Europe and Central Asia Region Johannes F. LINN said in a WB press release that, "Both operations demonstrate our clear recognition and full endorsement of the reform measures that are currently being implemented by the [Russian] Government. Today Russia's economy is facing great

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again, the Russian economic advisers can only gain confidence and experience.

Trade Conflict with EU Resolved?

· First Deputy Minister of Foreign Trade Anatoly OGURTSOV on Thursday has predicted a serious trade conflict between Russia and the European Union (EU). OGURTSOV said that although the EU accounts for 35 percent of Russia's foreign trade, the EU has made strict discriminating guidelines concerning trade with Russia. He hopes that the by proving to the EU that Russia is a market economy it can decrease the losses incurred through various limitations, including anti-dumping regulations. The EU on Wednesday removed the label of "non-market economy" for Russia and China for anti-dumping policies. Russia has actively sought to be accepted as a member of the world economic community by seeking membership in the World Trade Organization, the Economic Cooperation and Development Organization and its membership in the Paris and London Clubs

Business

Yeltsin Appoints New Reps. to Gazprom

· Russian President Boris YELTSIN on Thursday tinkered with the representatives to the 40 percent state owned gas giant Gazprom. By decree he appointed Fuel and Energy Minister Sergei KIRKENKO to chair the committee of state representatives, LIVSHITS, Anti-monopoly Committee head Nataliys FONAREVA and Deputy Economics Minister Nikolai SHAMRAEV to the committee. He also announced the removal of First Deputy Prime Minister Boris NEMSTOV, Economics Minister Yakov URINSON, and Alexander KAZAKOV from the committee. These changes represent the rising influence of Prime Minister Viktor CHERNOMYRDIN, who has close ties with the gas monopoly Gazprom, reported RFE/RL Newsline.

However, Gazprom head Rem VYAKHIREV and NEMSTOV still have not signed a new trust agreement on the management of the government shares in Gazprom, despite YELTSIN's instructions.

Bratsk Aluminum Plan Plans New Smelter

· Russia's Bratsk Aluminum smelter, the world's largest, and its major shareholder Your Financial Trustee plan to build a new aluminum plant with an

annual capacity of 200-300,000 tons to be located in the Siberian region of Irkutsk. Vasily BOIKO director of Your Financial Trustee said , "We are drawing up a plan to build another aluminum smelter close to the Bratsk power station. It is possible that Bratsk will be expanded. The cost of the new plant is estimated at $1.5 billion, which Your Financial Trustee is planing to raise by issuing level one or level three American Depository Receipts (ADRs) in New York, London and Tokyo. Bratsk plans to produce 790,685 tons of aluminum this year, an increase from 783,130 tons in 1996, with profits increasing to 271 billion rubles from 151 billion rubles in 1996.

European Republics

Russian Defense Minister in Minsk

· Russian Defense Minister Igor SERGEYEV arrived for a one-day visit in Minsk today to participate in a joint meeting of leaders of the Russian and Belarus Defense Ministries. Igor SERGEYEV will meet with Belarus President Alexander LUKASHENKO and Defense Minister Alexander CHUMAKOV to discuss issues of implementation of the main provisions of the Treaty on the Belarus and Russia Union and the Charter in the military field. During the visit the sides are to sign a number of documents, including a treaty on deepening military cooperation between the two states and establishing a joint board of the defense ministries.

Lukashenko Meets Berezovsky

· Belarus President Alexander LUKASHENKO met with Boris BEREZOVSKY, the Russian business tycoon. Officials did not release a statement following their meeting. Clearly they will have touched upon certain aspects of information policies, including cooperation between Belarus and Russian state television ORT, of which Berezovsky is a key shareholder. Unofficial sources said they would discuss the fate of two ORT correspondents, Dmitri ZAVADSKY and Pavel SHEREMET, who have been charged with breaking local legislation and are on trial. The detention of the journalist caused a break off of relations with Russia earlier this year. BEREZOVSKY was sacked as deputy chairman of the Russian Security Council last November.

Estonia Passes 1998 Budget

· Estonia's parliament on Wednesday passed the 1998 budget three months ahead of the deadline in

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a vote of 62 to 29. The government which is required to plan a balance budget, will have a surplus next year. The parliament's finance committee is concerned that the budget revenue target will not be met if economic growth is less than the 5 to 6 percent predicted for next year.

South Caucasus & Central Asia

Georgian-Russian Defense Ministers Meet

· Russian Defense Minister Marshal Igor SERGEYEV and his Georgian counterpart Lieutenant-General Vardiko NADIBAIDZE met today in Moscow to discuss terms of the Russian military contingent stay on Georgian soil and other matters of military cooperation. SERGEYEV informed NADIBAIDZE about the progress of the Russia-NATO Founding Act and on Russia's stance on the European security system. The ministers agreed to activate Russia-Georgia military cooperation.

Georgian Diplomat Sentenced for

· Georgian diplomat Georgi MAKHARADZE was sentenced by the District of Columbia Superior Court to server 7 to 21 years in a federal jail with the possibility for parole in five to six years, for one charge of involuntary manslaughter and four counts of aggravated assault, which occurred as a result of a car crash last January. He pleaded guilty these charges and has been held without bails, since the Georgian government waived his diplomatic immunity. In an earlier interview with The Washington Post, MAKHARADZE said, "What cannot be cured must be endured. I will get what I deserve." Viviane Wagner, mother of the late Jovianne Waltrick said that she is seeking justice for her daughter. She stated that, "I hope that form this tragedy, one message stands out: It is not a title that can protect a person but his actions." Today in court MAKHARADZE said to the victim's mother that he had, "No words. No explanation," for the accident.

EBRD Loans to Turkmenistan and Belarus

· The European Bank for Reconstruction and Devel

opment (EBRD) on Thursday signed agreements granting loans to Turkmenistan and Belarus. Turkmenistan will be granted a $80 million loan to carry out reconstruction of its transport system, including $50 million to be directly invested in the overall modernization of highways linking Turkmenistan's capital city of Ashkhabad with the industrial center of Mary. The rest will be spent for the reconstruction of a sea port in Turkmenbashi.

The EBRD will investment $3 billion in a 27 percent share of Belarus' fifth largest bank, Priorbank. This is the first time the bank has ever made an equity investment. These funds are intended to promote an independent banking sector operating on commercial principals. Deputy vice president of the EBRD David HEXTER said in a statement, "The EBRD's equity investment in Priorbank is the first bank-to-bank private transaction in Belarus and is a logical follow-up to the EBRD financed small and medium-sized credit line." The EBRD chose Priorbank because of its western-oriented operations that meet international audit standards. The EBRD has stated it is only interested in investing in Belarus' private sector due to the lack of political and economic reform in the nation, as well as lack of human rights reforms. The EBRD is expected to sign an agreement granting a $8 million credit to a joint Belarus-Canadian venture manufacturing glass containers.

Abkhazia Conflict Talks Resume in Sukhumi

· The first session of the Coordinating Council on resolving the Abkhazia conflict opened in Sukhumi on Thursday to oversee three bilateral working groups that will address security and economic issues and the repatriation to Abkhazia of ethnic Georgian refugees. The council was developed at UN backed talks in Geneva. Georgian Ambassador to Russia Vazha LORTKIPANIDZE told reporters that Tbilisi wants the council's decisions to be binding to both parties. Abhazian President Vladislav ARDZINBA said that UN representative Liviu BOTA would not permit Tamaz NADAREISHVILI, the chairman of the so-called Abhaz parliament, to attend the session, reported RFE/RL Newsline.

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

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