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, Decmber 9, 1997

Russian Federation

Politics

Improvement in Wage Payments?

· Acting head of the State Duma Budget Committee Alexander ZHUKOV predicts that wage payments in Russia must improve by the end of this year. He said that the wage arrears to budget-paid workers would not be repaid in full, but the sum of the debts and payment terms would be reduced. ZHUKOV believes the budget crisis in Russia is caused by low tax collections. The tax collections in 1997, were almost 140 trillion rubles less than planned.

Yeltsin Considers New Government

· The speakers of the two houses of the Russian Federal Assembly today offered President Boris YELTSIN at a "big four" meeting to consider the concept of a new government supported by a Duma majority. The "big four" includes YELTSIN, Prime Minister Viktor CHERNOMYRDIN, speaker of the State Duma Gennady SELEZNYOV and speaker of the Federation Council Yegor STROYEV. YELTSIN backed the idea and SELEZNYOV submitted a proposal approved by STROYEV. "Boris YELTSIN said, however, that the formula offered by me, will probably be used after the new presidential elections. He agreed, at the same time, that this issue should certainly be discussed, so that the government could be supported by a majority of deputy opinions both in the Duma and in the Federation Council, instead of being backed by only one faction," reported Itar-Tass.

Russia Receives $300M from World Bank

· The World Bank (WB) granted Russia a $300 million long-term loan for the reform of its housing and utilities sector, including the water supply and sewerage systems. Russia's State Committee for Construction (Gosstroi) on Monday discussed a

loan draft agreement between the Russian government and WB, and a sub-loan draft agreement between the Finance Ministry, Gosstroi, and Russian regions. The Russian government and WB will sign a general 15 year agreement in January, 1998.

Economy

Ruble = 5,917/$1.00 (NY rate)

Ruble = 5,935/$1.00 (CB rate)

Ruble = 5,913|5,957/$1.00 (buy|sell rates)

Nemstov on Russian Economy

· Russian first vice-premier Boris NEMTSOV outlined a plan for Russia to pull out of its economic crisis. The steps are: to simplify the tax system, to dump the system of individual privileges, to switch over to the accumulation principle in the pension system, to conduct an adequate and understandable customs policy and to turn over to a purpose oriented system of social maintenance. All these steps were formulated in the mid-term program of the government's actions. He noted there is a great distance between the adoption of the program and its implementation. NEMSTOV also noted that political assistance is very important for successful reforms. However, this is the most unstable factor in Russia, he concluded.

Ruble Denomination Will Happen on Time

· Chairman of the Russian Central Bank Sergei DUBININ refuted the rumor of a possible postponement of the ruble denomination. "Such ru

Today's News Highlights

Russia

Crack down on Tax Evaders

Gazprom Pres. to Lead EBC

European Republics

Lithunaian New Money Rule

EU Enlargement Strategy

South Caucasus & Central Asia

Plot to Assasin Georg.President

WB $20M Loan to Tajikistan

Underwater Pipeline Operates

Politics-Economics-Business

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Tuesday

December 9, 1997

Intercon's Daily

mors are groundless. Denomination cannot be postponed, we are ready for it. It will be held in the time set by the Russian president." Bank notes have already been minted and delievered to cash centers. Old bank notes will be withdrawn from circulation as they are exchanged for the new ones. He said the ruble denomination will positively effect the Russian economy. "There will be a normal system of the monetary circulation, a system of prices understandable for all and convenient bank notes," DUBININ said. He further added that a decision on the refinancing rate will be taken when the stock market, "reaches a point of balance."

Crack Down onTax Evaders

· Former Finance Minister Boris FYODOROV advised the Russian government to crack down on tax evaders,concentrating on the 100 biggest corporate tax debtors and then a handful of stars to express the seriousness of the government, reported the Financial Times. He offered the heavily indebted Zil car plant and pop singer Alla PUGACHEVA to serve as examples. He also believes that it will be necessary to unify Russia's tax inspectorate and the tax police. FYODOROV is expected to be appointed as Russia's chief tax collector replacing Alexander Pochinok. FYODOROV's plan is welcomed by various international financial institutions which have been pressing Russia to improve revenue collections. Russia badly needs the funds to pay wage and pension arrears, which President YELTSIN promised to pay by the year's end.

As a first step in the major crackdown to collect funds from corporations, Russia's Provisional Extraordinary Commission chaired by First Deputy Prime Minister Anatoly CHUBAIS decided on Monday to seize all assets from two major oil companies Sibneft''s Omsk Oil refinery and Sidanko's Angara Petrochemical Company in order to pay off massive tax debts. CHUBAIS' choice of Sibneft is another jab back at Russian tycoon Boris BEREZOVSKY, who controls the company. Sidanko, however, is owned by Uneximbank, which is headed by CHUBAIS's supporter Vladimir POTANIN .

Business

Gazprom President to Lead EBC

· The president of the Russian gas monopoly Gazprom, Rem VYAKHIREV, has been elected to

day president of the European Business Congress (EBC). The founding conference of the EBC, a non-governmental non-profit organization, opened in Bonn on Monday and was attended by its membership of politicians, businessmen, bankers and journalists from 137 countries. The EBC represents interests of business and comprises companies in industry and trade, banks and business unions. The EBC's goal is to cooperate economically in the region of the Organization for Security and Cooperation in Europe.

Yukos Acquires Eastern Oil Company

· Russian oil company Yukos bought controlling interest in the Eastern Oil Company (VNK) through a special cash auction on Monday. Companies representing the interests of Yukos acquired about 45 percent of shares for 4.8 trillion rubles (about $800 million) adding to previously purchased 9 percent shares. As many as 3,741 applications for the money auction had been filed, with a total offer of 12.7 trillion rubles, including 3,614 applications from individuals and 127 from corporate bodies.Yukos took a $8 million syndicated loan against the security of export sales of 200,000 tons of crude a month to the companies ELF Trading S.A. and Total International. The creditor banks were Goldman Sachs, West Merchant Bank, as well as Russian Most Bank and SBS-Agro.

The first attempt to privatize the 43-percent stake failed last month in violation of the rule that only one application had been filed. The VNK charter capital totals 3,008.775 million rubles. It incorporates the state-owned stock in a number of Siberian oil and petrochemical companies, such as the Tomskneft Oil Company and Tomsk and Achinsk refineries.

European Republics

Lithuanian New Rule on Money

· As of January 1, 1998, Lithuania will change the rules of bringing its currency through the border. Individuals will be allowed to take a maximum of 500,000 litas ($125,000) or its equivalent when leaving the country, but the sum must be entered in a customs declaration. The present currency exportation ceiling was only 5,000 litas. The ceiling for the amount of currency which can be legally brought into Lithuania will be lowered from 40,000 to 10,000 litas or an equivalent sum in other currencies.

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Tuesday

December 9, 1997

Intercon's Daily

Ukraine Meets Army Development Plan

· Army commander Vasily SOBKOV said today at a press conference that the Ukrainian army has fulfilled its development plan for 1997. Besides a military construction and development program to be implemented before the year 2005, the government also mapped out the plan for the army to modernize and become professional. He said the army now has 200,000 men, including 40,000 officers, and six academies, two trainers divisions and three warrant officers schools. SOBKOV noted that the army still has big numbers of commissioned positions unfilled. When Ukraine was first independent, 47 percent of the officers were Russians. He announced that the army's 1998 technology and equipment development plan will soon be publicized.

EU Enlargement Talks Continue

· The Luxembourg summit of the EU will begin on Thursday where a decision as to whether or not to begin Eastward expansion talks with the six applicants on the fast track (Poland, the Czech Republic, Hungary, Slovenia, Estonia and Cyprus) or with all the 11 applicants (added Latvia, Lithuania, Bulgaria, Romania and Slovakia) will be made. The ministers were discussing a compromise whereby full negotiations would only start with Cyprus and the five former Communist countries, but the other cases would be "screened" from the start to make them feel involved. Sweden and Denmark expressed concern that the process would create new divisions across Europe by leaving five applicants waiting in the wings.

Most EU countries are backing the proposal to begin negotiations early next year only with the most advanced six, having later talks with the rest. It remains only to think up an appropriate formula to avoid offending the "outsiders" and a split among the candidates. A diplomat, which asked not to be identified, said that it was, "really difficult" for the EU foreign ministers to reach agreement on the two major issues: an invitation list for the first wave of EU expansion and how to console the applicants left out.

South Caucasus & Central Asia

Plot to Assasin President-Explosives Seized

· Speaking at a press conference chairman of the Georgian parliament commission for defense security Revaz ADAMIA claimed that Russian security

forces are working with opposition forces to destabilize the internal situation in Georgia. He said that unnamed Russian forces are plotting to assassinate President SHEVARDNADZE in order to return pro-Communist groups to power. Intercon sources report that senior FSB and GRU officials appear to be behind these allegations. In an exclusive interview with Intercon's Daily, ADAMIA confirmed, "that there is movement in which Russian border guards are taking weapons to Batumi." This appears to be an attempt to create a new Russian border guard Headquarters for Georgia in Ajaria on the Turkish border. He said that Aslan, "ABASHIDZE [leader of Ajarian Autonomous Republic] is clever enough not to come to this decision if the central government of Georgia decides to take control of its borders." Recently, Abashidze has made some sensational claims including that the chairman and speaker of the Georgian parliament is attempting to overthrow him and that certain unnamed Georgian forces were behind his heart attack this summer by using an exotic ray gun.

Intercon obtained exclusive information that two days ago Georgian border guards seized cargo from a Turkish ship in the Port of Poti. Russians border guards had allowed the Turkish ship's cargo to enter the port. Georgians seized the cargo after they discovered, 120 tons of explosives were to be delivered at a nonexistent company in Tblisi, Georgia. Investigatioin into the shipment is continuing by the Georgian Security Ministry. Speculation is that the shipment was destined for Chechnya while the part of it was to remain in Georgia with opposition forces. However, it should be noted that there is no linkage between Chechens with any plot to assasin SHEVARDNADZE. Comment: This refocuses the Georgian-Russian relationship in hostile terms during an official visit with Russian Vice Prime Minister Valery SEROV, which is also considering border disputes. Russia again appears to be meddling in its neighbor's internal political affairs.

Georgian-Russian Visit

· Georgian President Eduard SHEVARDNADZE met with Russian Vice Prime Minister Valery SEROV today. SEROV delivered a message from Russian President Boris YELTSIN which, "assessed the entire scope of problems concerning the development of the CIS, as well as issues pertaining to the

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Tuesday

December 9, 1997

Intercon's Daily

development of Russian-Georgian relations," SEROV said. On Monday a two hour session focused around the border problem. SEROV said the Russian delegation includes a special working group set up to study the situation on the border in conjunction with Georgian officials and map out ways of remedying it. "The situation on the Georgian-Russian border is not a conflict but rather a misunderstanding which must be cleared up," SEROV said. He noted during his talks with SHEVARDNADZE, "we discussed the whole set of issues concerning the development of bilateral Russian-Georgian relations."

The two sides today will discuss economic cooperation. Earlier today, he stated that talks should focus on supporting economic entities in both countries. "Then all problems, including political ones, will be solved more effectively and productively." He pointed out that trade turnover between the two countries has increased by more than 2.5 times over the last two years from $104 million in 1995 to projected $270 million in 1997. Comment: As long as Russia fails to respect the sovereignty of former Soviet republics, conflicts will continue and bilateral trade will suffer.

World Bank Lends $20 Million to Tajikistan

· Over the next two months, the World Bank is preparing to loan Tajikistan $20 million. The bank's board of directors will meet December 16 and again in January to grant the two installments. Half of the loan will go directly to pay off wage and pension arrears, the other half in January will help restore and maintain the communications and social infrastructure in the Karagetinskaya region.

US-Japan-Uzbek Chemical Plant

· Uzbekistan along with a US-Japanese consortium plan to build a large chemical complex outside of Tashkent by the end of 2000. The project is estimated to cost $1 billion. "The construction of the complex will start in January 1998, and it will become operational at the end of 2000," said a government statement. While Uzbekistan will be responsible for the general construction estimated at $400 million,

the US-Japanese consortium will implement the technological components of the project, estimated at over $500 million.

US company ABB Lumus Global and Japanese companies Nissho Iwai Corporation and Mitsui & Co. Ltd. will build the Shurtan complex with an annual capacity of 125,000 tons of polyethylene, 137,000 tons of liquid gas, and 37,000 tons of gas condensate. US and Japanese Export-Import banks and Germany's investment agency Hermes will issue financial guarantees for the project by year's end.

Azeri-German Intergov't Agreements Signed

· Azerbaijan Vice Prime Minister Abid SHARIFOV and German Minister of Economics Herdtl WIGHARDT signed two intergovernmental agreements on financial and technical cooperation in Baku on Monday. The first agreement enables Azerbaijan to a low-interest credit of 29 million DM to rebuild and modernize water supplying systems in several regions. The credit is to be repaid in 10 years. Under the second agreement, Azerbaijan will get a grant of one million DM to examine projects for obtaining German credits.

Underwater Pipeline Begins to Operate

· An underwater Caspian pipeline began to operation on Monday between the Chirag gas deposit and Neftyanye Ogni compressing station in the open sea 120 kilometers away from the Caspian shore. The 48-kilometer pipeline, constructed by an Italian company as part of an $8 billion contract. The Azerbaijan International Operational Company (AIOC) said the line's initial transportability is 144 thousand cubic meters of gas a day. The pipeline can transport up to 1.6 million cubic meters of gas a day, and Chirag is expected to achieve this production level by 2002.

Albania-Kazakh-Kyrgyz-Tajik-Turkmen-Uzbek

· In a Memorandum on the Trade Act of 1974, US President Bill CLINTON on Monday determined that Albania, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan meet standards in the act necessary for trade.

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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