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, January 14, 1998

Russian Federation

Politics

Russo-Tajikistan Sign Bilateral Accords

· Russian Prime Minister Viktor CHERNOMYRDIN met with Tajik President Emomali RAKHMONOV to discuss bilateral cooperation. Representatives of the two countries signed a package of documents, including agreements on cooperation and information exchange in combating tax legislation violations, cooperation in civil defense, the prevention of emergency situations, endorsed a plan of military-technical cooperation between the defense ministries, and a protocol on cooperation between the foreign ministries. CHERNOMYRDIN pursued a political rather than economic agenda during his trip. However, the sides discussed problems involved in Tajikistan's repayment of a $300 million debt to Russia, as well as the granting of a new loan to Tajikistan for military purposes. CHERNOMYRDIN also met with the command of the 201st division of the Russian army and of the group of Russian frontier guards troops stationed in Tajikistan.

Russia-Hungry Sign Customs Agreement

· Russian Chairman of the State Customs Committee Anatoly KRUGLOV and Commissioner of the Customs Department of the Hungarian Finance Ministry Mikhai ARNOLD on Tuesday signed an agreement between the two nations on cooperation and mutual assistance in affairs of customs control, creating a legal basis for coordination of customs. KRUGLOV said that in 1997, the trade turnover between Russia and Hungary went up by 17-18 percent against 1996, figures. This made it necessary to increase cooperation in the area of customs and facilitate customs formalities. Hungary ranks 13-14th among Russia's foreign trade partners, and Russia ranks fourth in the Hungarian trade turnover. KRUGLOV did not rule out that in the long run,

Russia and Hungary would reach an agreement on exchange of information about customs cost of goods exported from their respective territories, preventing deliberate diminishing of customs costs.

Israel Appoints New Ambassador to Russia

· Israeli Foreign Ministry has appointed Israeli Ambassador to Ukraine Tzvi MAGEN the new ambassador to Russia, reported Itar-Tass. MAGEN was born in the Soviet Union in 1945 and immigrated to Israel in 1960. In 1970-1987, he served in the intelligence department of Israel's General Staff and then worked at a government bureau for relations with Jews in the former Soviet Union. In 1993, MAGEN was appointed Israeli Ambassador to Ukraine and Moldavia. MAGEN said he will do everything possible to develop and strengthen relations with Russia.

Chinese Premier to Visit Moscow

· Premier of the Chinese State Council LI Peng plans to visit Moscow in mid-February. The visit will be made in the framework of regular contacts between the premiers of the two countries. LI will hold talks with his Russian counterpart Viktor CHERNOMYRDIN. During his previous visit to Moscow in December 1996, the Chinese premier met with Russian President Boris YELTSIN. The visit in February is likely to be LI Peng's last visit to Moscow in the capacity of the Chinese State Council Premier. In the spring session of China's Congress, LI Peng is expected to give way to Vice Premier ZHU Rongji.

Today's News Highlights

Russia

Rus-Chechen Economic Rescue

Russia Produces Tons of Gold

Rus-Turkey-Israel Helicopter JV

Qualcomm Tries Again in Asia

European Republics

Belarus-Russian Unions

South Caucasus & Central Asia

Shevardnadze Visits Israel

Rus-Turkmen Sign Accords

Politics-Economics-Business

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Wednesday

January 14, 1998

Intercon's Daily

Delegation For Chechen Economic Revival

· A delegation led by Secretary of the Security Council Ivan RYBKIN, including Deputy Premiers Oleg SYSUYEV and Viktor KHLYSTUN, Culture Minister Natalia DEMENTYEVA, Head of State Committee for support to small and medium businesses Irina KHAKAMADA and other officials left for Chechnya today. The main purpose of the visit is to help restore Chechnya's economy. The delegation of Russian ministers will meet with corresponding official from the Chechen government in charge of a relevant block of issues. The two sides will discuss financial issues in preparation for Duma debates on the draft budget for 1998. According to SYSUYEV, a special plan for resolving the social and economic problems in Chechnya will be worked out during the visit. He said, "Although the state policy toward Chechnya has not worked out, people there should be treated as any other Russian citizens."

But being treated like Russian citizens, is just what Chechens do not want. Insisting fiercely on preserving their independence, Shamil BASAYEV has been instructed by President Aslan MASKHADOV

to form a new cabinet. BASAYEV believes the two biggest challenges facing Chechnya are to revive its devastated economy and crack down on crime, as Intercon reported January 7, 1998, and The Financial Times confirmed today. Earlier this week, Russia's chief prosecutor Yuri SKURATOV confirmed that an arrest warrant for BASAYEV is still outstanding and that it would be acted upon if the opportunity presented itself. BASAYEV is regarded as a criminal for leading a hostage-taking raid in 1995. BASAYEV shot back that, "SKURATOV is subject to investigation by Chechen prosecutors for the mass genocide of the Chechen people." Despite this, Chechen leaders are slowly realizing that in order to rebuild their regions, they must revive links with Russia.

Economy

Ruble = 5,980/$1.00 (NY rate)

Ruble = 5,990/$1.00 (CB rate)

Ruble = 5,960|6,020/$1.00 (buy|sell rates)

Consumer Prices Increase by 0.6 Percent

· The consumer prices in Russia increased by 0.6 percent over the first 12 days of January 1998, with a rise of 0.3 percent over the period from January 6 to 12, official statistics data reported. The Statistics

Committee predicts an increase of 1.6 percent inflation for the month of January, as compared to one percent last December.

Direct Investment Declined in 1997

· Ministry of Economy Yakov URINSON told journalists today that the total volume of direct investments into Russia's economy in 1997, declined by 6 percent against 1996 figures. URINSON said that a total investment volume accumulated since 1992, reached $23 billion by the end of 1997. Only $9.7 billion of the sum accounted for the direct investments. He believes that a reason behind the cut in investing activity is to a some extent due to the limited financial resources of Russian businessmen combined with poor investment motivation, insufficient mechanisms for transforming population's savings into investments, and high risks of investments.

Banking System Reduced to 1,700 Banks

· Deputy board chairman of the Central Bank of Russia Denis KISELEV said on Tuesday that Russia's banking system comprises about 1,700 banks. In 1997, the Central Bank of Russia annulled some 330 banking licenses. As Intercon reported, the Central Bank withdrew of 15 percent of operating licenses (about 316 licenses) of banks, as part of a program to weed out the weak financial institutions. According to KISELEV, while the number of large banks is gradually growing gaining nation-wide status, the number of small and medium banks is reported to be decreasing. He added, however, that a number of Russian Banks are earning respect in the West.

VNK Releases 1997 Production Figures

· Russia's Eastern Oil Company (VNK) announced on Tuesday that it produced 11 million metric tons of oil in 1997, for the third consecutive year and increased reserves by 9.5 million tons. VNK geologists have discovered Bolotnoye and Gurarinskoye oil fields. Eastern Oil Company also won the tender for the right to develop the Turukhansk oil field in the Krasnoyarsk Territory. The holding's own crude accounted for 76 percent of the overall amount processed by the Achinsk refinery while the depth of refining was 63 percent, reported Itar-Tass. Mini-refineries in the Tomsk region produced 34,000 tons of diesel fuel more than its 1996 level. The utilization of associate gas in Tomskneft was up from 23 percent in 1996, to 29 percent in 1997.

When you need to know it as it happens

Politics-Economics-Business

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Wednesday

January 14, 1998

Intercon's Daily

Russia Produces 65 Tons of Gold in 1997

· The Chairman of the gold-diggers' union of Russia Viktor TARAKANOVSKY announced that Russia's gold diggers produced 65 tons of the precious metal in 1997, which made about 60 percent of annual gold production in Russia. He stressed that the level of national gold production was maintained in 1997, due to new gold producing companies entering the industry. TARAKANOVSKY noted that the state still owes 1 billion denominated rubles to the diggers for the gold they have brought in. This payment complicates get-ready arrangements for the next digging season. TARAKANOVSKY stressed the necessity of relieving the tax burden imposed on the gold diggers. The current tax legislation provides for up to 40 percent of the produced gold's cost to be paid as taxes. He expressed concern over falling gold prices.

Business

Bulgaria To Retaliate Against Gazprom Exports

· Bulgarian Prime Minister Ivan KOSTOV threatened that if the Russian gas giant Gazprom lowers its gas exports, Bulgaria will reduce Russia's gas transit across its territory. Russia pumps an annual eight billion cubic meters of gas to Turkey, Serbia, Greece and Macedonia through Bulgaria's main pipeline. Any cuts in the pre-agreed transit quotas are accompanied with serious economic losses for Russia and Bulgaria, with serious international complications, KOSTOV said. KOSTOV's cabinet failed to pressure Gazprom into accepting transit rates and terms of gas deliveries which further benefited Bulgaria. This left Bulgaria with less than guaranteed gas exports from Russia since January 1, 1998. The Bulgarian Socialist Party believes this type of threat shows the weakness of the government. The party is calling for a vote of no-confidence in the government in late January.

Rus-Turkey-Israel Helicopter Joint Venture

· The Russian state company Rosvooruzhenie, Turkish Tusas Aerospace Industries (TAI), and the Israeli State Corporation Aviation Industries plan to set up a joint venture for production of combat helicopters Ka-50 and KA-52 operating under any weather conditions. The joint venture will incorporate the Kamov company which builds helicopters. Experts agree the Russian technology of helicopter production combined with the Israeli sophisticated

military electronic technologies might make the would-be alliance very competitive. If an agreement is finally signed helicopters will be assembled at enterprises of the TAI corporation in the suburb of Ankara. In the first stage, around 145 helicopters worth $3.5 billion will be built. This will be followed by another batch of 700-800 helicopters.

Qualcomm Tries Again in Asia

· San Diego's Qualcomm has secured a contract with the telecoms operator in Krasnodar Kubtelecom in the Commonwealth of Independent States (CIS). Qualcomm will supply a CDMA-One (code division multiple access) wireless local loop system to Kubtelecom. The deal, worth more than $10 million over its three-year span, will involve the installation of multiple 800 megahertz base stations in and around the Krasnodar region. Plans call for the first base stations on the network to operate by next month, although the main network rollout is expected this spring and summer. First deputy general director at Kubanelectrosviaz, the parent company of Kubtelecom, Leonid LASKAVY said, "The aim of this project is to provide reliable, high quality service to the city of Krasnodar and Krasnodar krai....There is very high demand for telephones in Krasnodar krai, with a waiting list of more than 250,000, and the wireless local loop system will be an optimal solution to provide service to the people who need it." After the project disaster in Rostov, Qualcomm hopes this project will restore their image as a major telecom company. Qualcomm employee Richard BLISS was installing a cellular telephone system in the Rostov region when he was arrested on spying charges. He was imprisoned last November while Russian Federal Security Services investigated and then released. BLISS returned to the US in late December.

European Republics

Belarus-Russian: Import Rates/ Legal Code

· Chairman of the Russian Customs Committee Anatoly KRUGLOV said that Russia and Belarus soon plan to unify rates of the import customs duty, which will have favorable effect on foreign economic activities. The Belarus share in the Russian foreign trade turnover is increasing to almost 7 percent. Belarus has turned into the third largest trade partner of Russia. The current functions and rights of the Russian and Belarus customs services differ greatly,

When you need to know it as it happens

Politics-Economics-Business

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Wednesday

January 14, 1998

Intercon's Daily

which limits a possibility to coordinate and upgrade measures against violations in the Belarus customs space. The joint development of the Belarus outer border will go on this year. Russia will spend 20 million new rubles and Belarus will spend 6.9 billion rubles for these purposes. This is the first practical move in the political and economic integration of the two countries. Kazakhstan and Kyrgyzstan are also members of the customs union. Tajikistan and several CIS republics more are also planning to join.

Russian Justice Minister Sergei STEPASHIN and Belarus President Alexander LUKASHENKO on Tuesday signed a two year plan to provide for personnel exchange, joint training and cooperation between the [legal] Bars. "Within two years we will try to come to the establishment of the Union Justice Ministry," STEPASHIN said. LUKASHENKO said the establishment of a clear legal basis for relations between Minsk and Moscow would give an additional impulse to the development of the two states.

South Caucasus & Central Asia

Shevardnadze Visits Israel

· Georgian President Eduard SHEVARDNADZE will visit Israel today to meet his Israeli counterpart Ezer WEIZMANN and discuss bilateral economic and political cooperation. SHEVARDNADZE said on the radio Monday that he planned to discuss Israel's participation in festive events celebrating 2600 years of Jewish settlement in Georgia. This anniversary will be marked in Georgia in September. SHEVARDNADZE will receive an award from Israel's Democratic Institute for his outstanding contribution to the development of democracy in Georgia and for his efforts aimed at returning Jews to Israel in his capacity as Soviet foreign minister, reported Itar-Tass. SHEVARDNADZE will also meet with the Prime Minister, the Mayor of Jerusalem, as well as with former US Secretary of State George SHULTZ.

Turkmenistan-Russia Sign Agreement

· Prime Minister Viktor CHERNOMYRDIN and

Turkmen President Saparmurat NIYAZOV signed agreements on double taxation avoidance at the end of visit to Ashkhabad today. The talks focused on a wide range of issues including bilateral economic contacts, cooperation in the production and transportation of natural gas and the legal status of the Caspian Sea. The first round of talks focused on Turkmenistan's gas transportation to CIS markets and Europe.

However, Russia and Turkmenistan failed to reach a compromise on transportation tariffs. The debates on the issue followed Russian energy giant Gazprom's raising earlier tariffs for the transportation of Turkmen gas to the CIS and Baltic states. According to NIYAZOV, Turkmenistan is ready to pump 30-40 billion cubic meters of gas annually via Russia, if the two countries signed an agreement. They also expressed hope negotiations would successfully continue at working groups level. In terms of a solution to the problem of transporting Turkmen gas, which is the most pressing issue in Ashkhabad-Moscow relations, NIYAZOV said time and patience were needed to achieve it. "We are ready for a dialogue providing for well-considered and gradual decisions," he said. Niyazov stressed on his part the importance of CHERNOMYRDIN's visit to his country, saying it marked the beginning of a new stage in the two countries' economic and political cooperation. CHERNOMYRDIN said Russia regards Turkmenistan as an important strategic partner in the south.

Russia and Turkmenistan intend to initiate an international consortium for the construction of an Astrakhan-Turkmenbashi-Kizylatrek railway with a continuation in Iran. The future consortium is expected to implement the construction of a ferry line between Astrakhan and Turkmenbashi across the Caspian Sea. Russia has drawn up the project of the railroad which is expected to reduce the time and the of cargo deliveries to Turkmenistan and port cities of the Persian Gulf. Russia and Turkmenistan agreed that the adoption of a convention on Caspian legal status should be sped up.

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

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