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

Monday, December 8, 1997

Interparlimentary Conf. of CIS Results

· The 10th meeting of Interparliamentary Assembly (IPA) of CIS in St. Petersburg ended Saturday. Legislative leaders from Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia and Tajikistan attended the meeting while Ukraine sent in observers. Many in attendance, including Russian Federation Council Chair Yegor STROYEV, felt the meeting was successful.

STROYEV said the Conference enacted more than 50 laws including the criminal law, code of criminal procedures and the civil law as well as legal documents on financial offenses since its founding five years ago. A new package of legal documents on banking, finance, education, ecology and charity and an appeal to the UN Assembly and other international organizations to stop the information war were passed on Saturday's meeting. The IPA does not limit itself only to legislative work, STROYEV said. Parliamentarians take an active part in peace-making activities to settle conflicts in the CIS. The Assembly is also seeking to create a free trade regime in the CIS. While developing economic integration it is important to look for new forms of cooperation, STROYEV said. Russia urged for a unified legal system in CIS for cooperation among members.

TheCIS Interparliamentary Assembly, expressing concern about mounting information wars, decided to ask the UN General Assembly and various international organizations to consider this is

Russian Federation

Politics

Fradkov to be Ousted? Chubais to Leave?

· Foreign Economic Minster Mikhail FRADKOV may be ousted by Russian President Boris YELTSIN in a meeting of Ministers to take place this week, reported the Journal of Commerce. YELTSIN believes FRADKOV is to blame for poor trade figures. Between January and July 31, trade revenue was at $74 million, down 3.4 percent from the same period in 1996. That figure marks an 11 percent decline of trade with commonwealth states. Imports, declined 4 percent overall and fell 20 percent from CIS.

However, industry leaders do not blame FRADKOV, instead they believe the blame lies with First Deputy Prime Minster Anatoly CHUBAIS. "He placed himself in charge of this problem months ago and he has done nothing since," said one unnamed official. CHUBAIS is viewed as favoring foreign imports at the expense of domestic producers and defending the ruble at levels which undermine Russia's export competitiveness. Vladimir POTANIN, head of Uneximbank and CHUBAIS's friend, said CHUBAIS will go within a few weeks. Intercon predicted in its November 20th edition, that without credibility CHUBAIS would not likely last to the year's end.

Still other officials blame President YELTSIN, in his attempts to make ministers scapegoats while refusing to give up CHUBAIS. These officials cite press reports from the president's visit to Sweden which call him, "a man who is not well," and sometimes incoherent. This behavior can well be masked as long as he remains in the Kremlin. But when engaged in foreign travel, it be comes evident that President YELTSIN exhibits diminished mental capacities which calls much in to question.

Today's News Highlights

Russia

ECDO on Russian Economy

Moscow Red with Heinz Ketchup

European Republics

Ukraine Seeks hard Currency

Lith. to Sell Oil Refinery

South Caucasus & Central Asia

Ski Masks and Stun Guns

Turkmen-Georgian Relations

Odyssey Sells Turkmen Interest

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sue. State Duma chairman Gennady SELEZNYOV said that, "we must be ready for an information war and such issues as who wages it and who benefits from it." He stressed that an information war, "is already being waged." He noted that, "no one asks us when he sends information about us through the Internet," after discovering a file on himself in the Internet which he did not authorize.

"The CIS Inter- Parliamentary Assembly has proved viable as the legislative body of the Commonwealth of Independent States," STROYEV said. The Assembly has been recognized by all CIS countries. He expressed the hope that Ukraine will decide on its participation in the Assembly soon. Leader of the Ukrainian delegation Vladimir YATSENKO said, "Ukraine participated, participates and will participate in the work of the CIS Inter-Parliamentary Assembly. YATSENKO expressed the hope that Ukraine will become a full IPA member, adding that this will depend by 99 percent on President Leonid KUCHMA's position. STROYEV believes that Uzbekistan will also try to become an assembly member.

STROYEV asked IPA members to prepare recommendations on how to promote cooperation among CIS states and submit them to the next meeting of the CIS Heads of State Council in January 1998. He called for a joint meeting of the CIS heads of state and government and parliament speakers in order to define, "the clear cut parameters of the CIS in light of the requirements of the 21st century."

Economy

Ruble = 5,925/$1.00 (NY rate)

Ruble = 5,936/$1.00 (CB rate)

Ruble = 5,917|5,955/$1.00 (buy|sell rates)

ECDO on Russian Economy

· The Economic Cooperation and Development Organization (ECDO) released a 300 page report assessing the state of the Russian economy. Russian Vice Premier Yakov URINSON said, "This is a very interesting and thorough document, which gives an unbiased and concrete picture of the Russian economy's current state and prospects for perfecting the economic policy."

It predicts that Russia will stabilize the gross domestic product (GDP) this year and will probably in

crease it by 0.5 percent as compared to 1996. It says that Russia's GDP can be expected to grow by three percent in 1998. ECDO predicts that this year's inflation in Russia will add up to 12 percent. The upcoming denomination of the ruble, in their opinion, "proves that the government is sure that the high inflation era is over." The experts predict that the 1998 federal budget deficit will equal to approximately seven percent of the GDP (taking into account the treasury's spending on servicing the internal and external state debts). The International Labor Organization calculated the unemployment to slightly increase: 9.5 percent in 1997, and about 10 percent in 1998.

Secretary-General of the Organization Kumiharu SHIGEHARA noted that approximately one third of the budget, allocated for cooperation with non-member states, was earmarked for Russia. He expressed hope that Russia would become a member in the ECDO.

Business

$500 Million Diamond Deal Disintegrates

· A $500 million loan for Russia's biggest diamond producer, Almazy-Rossi-Sakha (ARS) collapsed and with it possibly Russian's diamond industry, reported the Financial Times. Natwest markets of the UK withdrew the loan because of Asian market turbulence spilling over into emerging markets. The loan was put on hold in January when DeBeers ended its formal links with Russia. The loan was conditional on ARS's ability to supply diamonds which DeBeers would buy and then repay the banks. Natwest arranged for Russian banks to loan ARS funds to keep production going. ARS needs the money to refurbish existing mines and finance new explorations. "Unless ARS gets this money the long-term ability of Russians to mine diamonds is in question," said one analyst. Under terms of the agreement with DeBeers, Russia is to sell $550 million to $1.2 billion of diamonds to the South African group's London based Contract Selling Organization. With the contract running only to the end of 1998, ARS has increase pressure to deal with western banks.

Roosvooruzhenie New Office in Saratov

· Saratov Governor Dmitry AYATSKOV and General Director of Rosvooruzhenie company Yevgeny ANANYEV signed an agreement Sunday to

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open a Rosvooruzhenie office in the Saratov region. It will be the sixth office of the company in regions of Russia. ANANYEV said the offices's departmental status is sufficient, "to enable Saratov defense plants to work for the outer market and preserve the scientific and production potential of the region."

Moscow to be Red by Heniz Ketchup

· H.J. Heinz Company announced today plans to build a ketchup and sauce plant in Moscow by 2000 investing more than $20 million. The factory, employing between 200 to 250 people, will use all local raw materials. Heinz Company already produces baby-food in Stavropol, which holds 17 percent of the country's market.

Lithuania Hopes to Sell Stake in Oil Refinery

· Lithuanian European Affairs Minister Laima ANDRIKIENE said the government hopes to sell the controlling stake of the oil refinery Mazheikiu Nafta by mid-1998. Mazheikiu is the only refinery in the three Baltic states. The government expects to identify an investor within six months and then, "by the middle of next year, everything should be over, not only the privatization program, not only the strategy, but everything should be completed," ANDRIKIENE said. Stephane Reumus BOREL of Banque Paribas, the advising financial institution, revealed that 51 to 55 percent is tentatively set for sale. The state is expected to keep 34 percent of Mazheikiu Nafta, as by law no single investor can take more than 33 percent in the refinery. The refinery produced 5.072 million tons in the first 11 months, which is a substantial increase from 3.655 million tons during the same period in 1996.

South Caucasus & Central Asia

Border Debate With Stun Guns and Black Masks

· Russian border guards wearing black ski masks and using stun guns clashed with 50 Georgian activists at the disputed border crossing on Saturday. Black Sea News agency said, "The Russians warned that if demonstrations continued, they would use force." Georgian government representative Vaso ANTADZE, who was present at the border said, "This was a peaceful action. The troops behaved very aggressively and obviously wanted to provoke the situation." Parliament speaker Zurab ZHVANIA said relations between the two nations had worsened and were characteristic of the cold war.

Both sides have accused the other of escalating the dispute. The commander of Russia's special Caucasian border guard district, Lieutenant-General Yevgeny BOLKHOVITIN, on Saturday demanded an immediate withdrawal of Georgian border guards, who have been illegally stationed in a mountainous place called Chyortov Most on Russian territory. In his letter to the Georgian Border Guard Service chief Major-General Valery CHKHEIDZE, BOLKHOVITIN also demanded that he take measures to prevent further attempts by Georgian citizens to cross into Russia as they did at Friday's rally to protest actions by Russian border guards. He described the events

European Republics

Ukraine Seeks Hard Currency Help

· Ukrainian Communist Party leader Petro SIMONENKO said at a press conference that Ukrainian legislators will urge Western countries to reveal sources of Ukraine's hard currency deposited in the banks of those countries to help Ukraine control illegal outflows of hard currency. The appeal, signed by 151 Ukrainian legislators, will be sent to governments and parliaments in Britain, Canada, Cyprus, Germany, Switzerland, the US and other countries.

The Ukrainian government believes that at least $20 billion is illegally kept in foreign banks by Ukrainians operating in the shadow economy. SIMONENKO also said about 12 billion dollars and 45 to 60 percent of the Ukrainian currency, the gryvna, are circulating in the country but out of the reach of Ukrainian banks.

Ukraine Unemployment rate Increases

· The State Statistics Committee said on Friday that unemployment increased 70 percent from the beginning of this year stating that in November 590,000 Ukrainians were unemployed. The committee said 38 percent of the unemployed had personally applied for dismissal. Nearly 35 percent became unemployed due to "changes at production facilities" and personnel cuts.

Private Lawyers Banned in Belarus

· President LUKASHENKO announced on Friday that all lawyers in Belarus will be required to join the Bar Union and be subject to its rules. This ban will hit foreign firms hard. There are only 50 private attorneys in Belarus, reported RFE/RL Newsline.

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on the border as a, "planned action aimed at discrediting Russian border troops" which is being carried out by Georgia with the direct involvement of its officials. Georgian President Eduard SHEVARDNADZE accused Russia of stealing neutral territory between the two nations. On Sunday, chiefs of the headquarters of the Caucasian Border District Nikolai REZNICHENKO and of the state department for the protection of the Georgian state border Valeri CHKHEIDZE met to discuss the Russian-Georgian border. CHKHEIDZE said that, "such meetings will be possible and effective only if the Russian side is represented by Federal Border Guard Service director Andrei NIKOLAYEV." CHKHEIDZE called for restoring the status-quo on the Georgian-Russian border and noted that all disputes shall be settled through negotiations. He said that the state border should be established not by border guards, but by the governments of the two countries.

Turkmen-Georgian Coop, Except on Gas?

· Turkmen President Saparmurat NIYAZOV and Georgian counterpart Eduard SHEVARDNADZE signed a declaration on cooperation in Ashkhabad on Friday. SHEVARDNADZE said, "we have confirmed once again our interest in developing mutual partnership which helps overcome economic difficulties together." The two presidents also agreed to strengthen the legal basis of bilateral relations. In addition, the sides signed a convention to avoid double taxation, a consular convention and agreements on industrial cooperation, the environmental protection, statistics, standardization, metrology and certification, as well as agreements to guard industrial property and to observe tax legislation. NIYAZOV and SHEVARDNADZE stressed the great potential of the economic development and cooperation between the two countries.

The two sides, however, did not sign an agreement about Georgia's debt for Turkmenistan gas. Turkmenistan halted gas supplies to Georgia because of Georgia's inability to make payments on the outstanding debt of $465.2 million. Georgia agreed to

begin repayments, but Turkmenistan has not resumed gas supplies. This is precluded by Gazprom's refusal to allow Ashgabat to use its pipelines. SHEVARDNADZE expressed confidence that the gas problem will be resolved.

OIC Summit in Tehran

· The 8th summit of the Organization of Islamic Conference (OIC) will open in Tehran today. Turkmenistan President Saparmurat NIYAZOV, leading a governmental delegation, will attend. NIYAZOV intends to propose for signing a package of agreements which will facilitate the strengthening of stability in Central Asia. The Turkmen president plans to meet with various leaders including his Iranian counterpart Seyed Mohammed KHATTAMI to discuss Turkmen-Iranian partner relations in the areas of oil sector, energy and communications. NIYAZOV will also talk with Azerbaijan President Geidar ALIYEV to focus on the Caspian Sea status.

Tajikistan President Emonali RAKHMONOV will also attend the conference. He will speak on the peace settlement of the Afghan conflict.

Odyssey Petro. Sells Turkmeinstan Interest

· Canadian based Odyssey Petroleum Company announced in a company press release that it sold its interest in Block II, offshore Turkmenistan project. The sale proceeds are $7,486,000. Through Larmag Energy Partners II Ltd., Odyssey held a 10 percent interest in the joint venture which is exploring and developing Block II., Dragon Oil PLC of the United Kingdom, one of Odyssey's partners in the joint venture, purchased the interest.

Odyssey's management determined that the funds from the sale would be better utilized in other petroleum projects to further enhance the Odyssey's shareholder value. Odyssey Petroleum Company engages in the exploration and development of oil and gas projects on an international basis, and in the production and distribution of ethanol, primarily in the western United States.

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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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.

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