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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, December 24, 1997

Pacific Economic Community (APEC), and The London Club, and enjoys the support of loans from the IMF, EBRD, and the World Bank.

While relations with strategic countries are increasing, Russian President Boris YELTSIN and PRIMAKOV differ on ties with Western countries. YELTSIN hailed Russia's international memberships and sent warm holiday greeting to its leaders. PRIMAKOV, on the other hand, has stated that relations with the west after the collapse of the Soviet Union are not working out. "The slogan of a strategic partnership with our former Cold War foes was initially proclaims, but it somehow lost its luster with time...Such ties started turning into those between patron and client. Russia has not agreed and will not agree to this. Russia favors equal relations between all states, regardless of who is the stronger or the weaker." PRIMAKOV also stated that he believes Russia needs to be tougher in defense of its own interests with the West. He reiterated Russia's interest in diversifying its foreign policy by re-establishing old diplomatic ties severed by the collapse of the Soviet Union with nations such as China, Iran and India. Summing up the accomplishments of Russian foreign policy in 1997, PRIMAKOV said no major development in the world can take place without Russia's direct participation. Comment: It appears that PRIMAKOV's view of Russian foreign policy is indistinguishable from the Soviet period where strategic blocks were formed in order to counter balance other forces which Russia defined as competitive. Interestingly

Russian Federation


Russia's Foreign Relations Accomplishments

· Foreign Minister Yevgeny PRIMAKOV on Tuesday reviewed the Russia's foreign relations accomplishments of 1997, highlighting relations with the CIS, Baltic States, international organizations, western states, and renewing old Soviet ties. PRIMAKOV said that relations with the CIS members were in the domain of "failings and drawbacks." He hopes to boost relations by calling for a stepping up of CIS integration, including an inter-sectoral level. PRIMAKOV was very positive regarding Belarus-Russia relations. The two nations have signed many agreements concerning military cooperation, legislative liaisons, and economic cooperation. Relations with the Baltic states, PRIMAKOV said have been a sequence of "positive shifts." However, the Baltic states did not respond favorably to Russia's offer of security guarantees.

The signing of the Russia-NATO Founding Act is one of major results of Russia's foreign-policy activities on the European track. "Russia still holds a negative attitude to NATO enlargement but at the same time it does everything to prevent the emergence of new dividing lines so that the actually existing organization in its enlargement would do less damage objectively and subjectively to Russia's both geopolitical and political-military interests," the Russian minister said. PRIMAKOV attended the Copenhagen session of the Foreign Ministers's Council of the Organization for Security and Cooperation in Europe (OSCE), which drew up a charter which will be a basic European security document. Russia this year has joined many international organizations increasing its influence, acceptance, and network of allies. Russia has received full membership in the group of eight most influential countries of the world, the Asia-

Today's News Highlights


Advances/Setbacks in Crime

Gold Production Increases

Sibneft to Issue Shares

European Republics

CB Did Not Loan Government

Energy-Saving Sevice Company

South Caucasus & Central Asia

Greece, Iran, Armenian Coop.

Kyrgyz to Halt Kazakh Supplies




December 24, 1997

Intercon's Daily

enough, PRIMAKOV revealed that relations with CIS members have not been successful. This is precisely because Russia has failed to treat these nations as independent nations, as many CIS member leaders have proclaimed. This failure to accept their sovereignty has led to disastrous results within Russia's own backyard. Claiming Russia believes in equality for all states is a direct contradiction to its actions with CIS members, which speak louder than words.

Topol Missiles on Stand-by Alert

· Russian Defense Minister Igor SERGEYEV today attended the ceremony placing the first two intercontinental strategic missiles of the Topol M complex on stand-by alert. The complex, "has no analogues in the world with regard to its flying and technical characteristics," SERGEYEV said. The maintenance of the mobile and land-based Topol M complex requires three times less money than other strategic missiles which Russia has in use. Topol Ms are fully in the context of the START-1 and START-2 treaties, he added Topol M missiles will be replacing outdated intercontinental strategic missiles, and the terms of replacement will depend on ratification of the START-2 treaty by the Duma lower house, he said.

Also Russia has started to build two fourth-generation conventional submarines, the Interfax news agency reported Tuesday. Both will be equipped with six sets of torpedo launching systems, and 18

torpedoes. Their combat effectiveness will be two to three times greater than their third-generation counterparts. One of the submarines is to be used by the Russian military, while the other will be exported.

Crime in Russia: Advances and Set-Backs

· Police officials on Tuesday released figures showing that juvenile delinquency in Russia went up 17 percent in 1991-1996 while the number of the under-aged involved in criminal activities increased by 20 percent. According to statistics, every tenth crime in Russia is committed by a teenager or involves teenagers, said deputy head of the Interior Ministry's Public Order Department Major-General Anatoly SUKHOV. Every tenth teenager on the police books is mentally unstable, while every fifth is too young for criminal punishment. Annually, a total of 90,000 children commit crimes before they reach the age when they can be held to criminal responsibility. In 1997, over 170,000 teenagers were entered onto the police books, with the number of those who

have no parents or guardian increasing by 11 percent against 1996 figures. To attempt to combat these figures, the inter-sectoral commission of the Russian Security Council on Tuesday approved a draft anti-crime program to be submitted to President Boris YELTSIN. The program, called Foundations of the State Policy of Fighting Crime in Russia, is an analysis of the crime situation and prognosis of it for the until 2005. The document is expected to be a political-legal act laying down the crime-fighting strategy of the state. "The need for adoption of this document is determined primarily by the acute crime situation, growth of the crime rate which creates a serious tension in society," the press release reported.

Only a day later, the Russian State Duma passed an amnesty resolution which will release 35,000 convicts and sentences of another 400,000 will be shortened. The amnesty is expected to involve those who committed minor crimes, pensioners, participants in hostilities, bearers of orders and medals, minor criminals convicted for three years or less, and women with minor children.


Ruble = 5,950/$1.00 (NY rate)

Ruble = 5,955/$1.00 (CB rate)

Ruble = 5,936|5,974/$1.00 (buy|sell rates)

Russia Survived 4 Economic Crisises in 1997

· First Deputy Prime Minister Anatoly CHUBAIS said that the Russian economy experienced four serious blows in 1997, putting it on the brink of a catastrophe, but each time the government escaped a collapse by immediate "hard and aggressive" action. The first blow was the failure to collect taxes in March and October. The second was the refusal of the International Monetary Fund (IMF) to provide Russia with a $700 million installment on a loan in November. The third was the World Bank's refusal to extend a $1.1 billion loan in the fourth quarter. "The fourth blow was the world financial crisis which did not permit us to take money from the state short-term bonds market but made the government spend money," he said. "We announced a new policy on the financial markets on December 1. We liberalized interest rates on the state bonds market letting them rise to a fantastic height, which stopped the sale of rubles in favor of [foreign] currency," CHUBAIS told

When you need to know it as it happens




December 24, 1997

Intercon's Daily

Itar-Tass. As a result of the new policy, interest rates on the state bonds market have been decreasing gradually since December 4, and the fall of shares on the market of corporate securities stopped.

Gold Production Increases

· A total of 113.7 tons of gold were produced in Russia in January-November 1997, which is 1.5 tons more than in the same period in 1996. A larger extraction of gold is due to the operation of the new gold mines Kubaka, the Magadan region, Olimpiadinskoye, the Krasnoyarsk territory, and Karalveyemskoye, the Chukotka autonomous district. A total of 600 companies extract gold in 28 regions and territories of Russia. Less than one percent of the Russian gold production is done by enterprises controlled by the state. The Russian gold mining industry employs about 350,000 people.

Rosneft Sell-Off Approval Set for February

· Russian Fuel and Energy Minister Sergei KIRIYENKO on Wednesday said that the plan for privatization of the state oil holding company Rosneft will probably approved in February, 1998. He said that all major concerns of the sale have been settled. KIRIYENKO on Friday release a new proposal to auction 75 percent plus one shares in Rosneft in a single investment tender. But, employees at Rosneft, whose production units include Purneftegaz, are pursuing a second option. The employees voted to buy 51 percent of shares in the company. The tender of Rosneft, as Intercon has reported, has attracted western companies British Petroleum and Royal/Dutch Shell and has developed into yet another battle over state run enterprises between rival bankers and businessmen in Russia.


Sibneft Shareholders Issue Shares

· Shareholders of Russia's seventh largest oil company, Sibneft, approved raising 8.03 billion rubles ($1.35 million) from 7.23 billion through the issuance of new shares. The increase is part of a plan to consolidate shares in Sibneft and its operating subsidiaries into a single stock. According to a company statement, "By the decision of the meeting, 500 million new shares with a par value of 1.6 rubles each will be placed through a closed subscription by May 15, 1998...This decision is linked to the redenomination of the securities planned in 1998

and in no way infringes on the rights since the increase in charter capital to raise the nominal share price will be undertaken...freely and in proportion to the number of shares shareholders have." Russia plans to knock off three zeroes from the ruble as of January 1, 1998, which would give Sibneft shares a face value of 0.0016 new rubles.

Sibneft, controlled by business tycoon Boris BEREZOVSKY, has formed an alliance with YUKOS to bid for the state oil holding company Rosneft. Sibneft's main production unit is Novyabrskneftegaz. As Intercon reported on December 18th, Sibneft owns the Omsk Refinery which has been required by the VChK Tax Commission to pay all back taxes to the government by December 25, 1997. Economics Minister Yakov URINSON said that, "if they fail to comply with this decision, all measures provided for in the federal laws, up to the confiscation of their property by the Federal Tax Service, will be effected on December 26. Besides, the parent company will have to bear vicarious liability."

Eurosov Postpones Flotation

· Russia-oriented oil developer Eurosov has decided to postpone its flotation until the end of January. The company is seeking to raise $24.8 million through a fully underwritten placing. The original plan was to list before Christmas had proven to be too ambitious. Chief Executive Jonathan STEWART said there was sufficient support for the listing, but not all the institutional investors that the company wanted on board were ready to move by the original date, reported the Financial Times. STEWART said the delay would not affect operations or development drilling at the Magma fields in Siberia.

European Republics

Ukraine Investigates Former Premier Lazarenko

· Ukrainian investigators have launched a criminal probe into the spending of Ukraine's former premier Pavel LAZARENKO, also the most powerful opposition leader. LAZARENKO is accused of spending 5 million gryvnias (over $2.5 million) worth of national money on the renovation of a dacha he has received from the state. LAZARENKO allegedly stole this money from Ukraine's reserve fund. The parliament instructed prosecutors to "sort out" the matter. LAZARENKO heads the party Gromada which was one of the five most influential political parties at the

When you need to know it as it happens




December 24, 1997

Intercon's Daily

start of elections to the Ukrainian parliament.

Ukraine CB Did Not Loan Money to the Gov't

· The head of Ukraine's Central Bank YUSHCHENKO said on Tuesday that 1997 marked the first time the bank refrained from issuing direct credits to the government. The bank did not print money to cover the budget deficit. This practice during the first few years following independence resulted in spiraling inflation, which is predicted to be around 10 percent this year. YUSHCHENKO said, "This was one of the most complex tasks that faced the Central Banks of Eastern Europe and CIS countries in 1997. Instead of printing money, Ukraine relied on foreign credits and its Treasury bills to finance the budget." Ukraine issued 7.5 billion gryvnias ($4 billion) in Treasury bills.

Energy-Saving Service Company

· Ukresko, an energy-saving service company, is being formed in Ukraine with a state charter fund of no less than 75 percent. A cabinet resolution to the effect has been adopted, sources at the Ukrainian government press service told Itar-Tass on Tuesday. The company is formed on proposal of the Energy-Saving Committee and the European Bank for Reconstruction and Development (EBRD) to attract investments for the introduction of energy-saving technologies on a contest basis. The EBRD Board has allocated $30 million for the project.

South Caucasus & Central Asia

Greece, Iran, Armenia Strengthen Cooperation

· Greece, Iran and Armenia in Athens Monday signed a memorandum of understanding to further strengthen their cooperation. These nations all have close relations working relations with Russia. Under the memorandum, the three countries will cooperate in the sectors of transport, postal services, telecommunications, tourism, industry, technology and energy. Greek Foreign Minister Theodoros PANGALOS and his Iranian and Armenian counterparts, Kamal KHARRAZI and Alexander ARZOUMANIAN, also

decided to arrange meetings of experts in these sectors early next year. The tripartite cooperation began in 1995 and the last meeting at ministerial level took place in Tehran in 1996. This reflects a counterbalance to the growing connections to Georgia, Azerbaijan, Turkey, and Moldova. What is emerging are growing regional alliances that reflect strategic centers for each group. Greece, Iran and Armenia appears to be closely linked to the orbit of Russia's influence. Georgia, Azerbaijan, Turkey, and Moldova, however, seek a more active relationship with the west.

Kyrgyz May Halt Water, Energy to Kazakhstan

· Deputy General Director of the Kyrgyzenergo state company Ilyas DAVYDOV on Tuesday said that Kyrgyzstan will stop the supplies of irrigation water and electricity to Kazakhstan in 1998, if the previous supplies are not paid. The debt for 1996-1997 supplies is $21 million. DAVYDOV hopes that the debt problem will be settled at intergovernmental negotiations to be held in Bishkek.

Every spring Kyrgyzstan supplies electricity and 3 billion cubic meters of irrigation water to the adjoining areas of Uzbekistan and Kazakhstan, in accordance with intergovernmental agreements. The republic has to run at a smaller capacity its chief energy producer in order to accumulate enough irrigation water. Kazakhstan and Uzbekistan should compensate the deficit of electricity with supplies of coal and gas for Kyrgyz thermal power plants. This year Uzbekistan fulfilled its obligations and supplied 800 million cubic meters of gas to Kyrgyzstan, but Kazakhstan delivered only 130,000 out of the planned 600,000 tons of coal.

Intercon International, USA wishes its friends, clients, and readers the very best holiday greetings and all the success for a prosperous New Year. We will resume publication after our traditional winter break on January 5, 1998. Thank you for your loyalty and support which has allowed us to publish the Daily Report on Russia and Former Soviet Republics every Business day since 1993.

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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