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

Tuesday, January 27, 1998

ment on cooperation Monday. The two parliaments have agreed to develop relations with each other and promote contacts in such fields as human rights, ethnic relations, regional policy, culture, education, environment and other areas of humanitarian cooperation. The document also says that the sides will facilitate work to draft laws on economic cooperation. SELEZNEV noted that several major economic agreements were signed on the results of a working visit to Dushanbe by Russian Prime Minister Viktor CHERNOMYRDIN.

During the meeting, the sides discussed the social and political situation in the country, operation of the National Reconciliation Commission to implement the agreement on establishing peace and national accord. Tajikistan has, "always valued very highly the role of the Russian Federation as a guarantor of peace and stability in Central Asia," RADZHABOV said. He stressed that Russia had played a key role in bringing the Tajik government and the opposition to Moscow on June 27, 1997 to sign a crucial agreement on peace and national reconciliation in the country. SELEZNEV also believes that Tajikistan needs Russian peacekeepers. "Peace in Tajikistan is fragile and everybody understands that a new bloodshed is inadmissible," he said.

Economy

Ruble = 6,050/$1.00 (NY rate)

Ruble = 6,021/$1.00 (CB rate)

Ruble = 5,991|6,051/$1.00 (buy|sell rates)

Russian Federation

Politics

Yeltsin To Meet With World Leaders

· Luxembourg Prime Minister Jean-Claude JUNCKER met with Russian President Boris YELTSIN, and Prime Minister Viktor CHERNOMYRDIN. YELTSIN stated he was pleased to continue 130 years of bilateral relations. During the visit, the two sides signed bilateral agreements on health, culture and bank staff training. The Luxembourg premier will participate in a session of the Russian Federation Council scheduled to be held in St.Petersburg on January 28.

Macedonian President Kiro GLIGOROV also met with YELTSIN and CHERNOMYRDIN this afternoon. Russia and Macedonia signed a Declaration on Friendship and Cooperation. Indicated among the priority spheres of cooperation are economy and trade, finances, industry, construction, transport, communications, science, technology, and tourism. Russia and Macedonia are determined to cooperate in, "combating international terrorism, crime, primarily organized crime, drug trafficking, and illegal transactions with weapons and cultural values." Representatives of the two nation's health ministries will sign an agreement on cooperation in the field of health care and medicine YELTSIN stressed after the signing that this, "is the first inter-state document signed by democratic Russia and sovereign Macedonia at summit level." GLIGOROV also participated in planning of the Russia-Macedonia Council for Economic Cooperation.

Russian-Tajikistan Relations

· Speaker of Russian State Duma Gennadi SELEZNEV and head of the Tajikistan parliament Safarali RADZHABOV discussed development of inter-parliamentary relations and signed an agree

Today's News Highlights

Russia

Tax Revenues 91 Percent

Dollar-Euro Links to Ruble

Rosneft - Political Event of '98

European Republics

Belarus Pres. Tightens Economy

South Caucasus & Central Asia

Georgia CIS-Econ. Focused

Unocal-Turkmen Oil Deal

Caspian Oil Rights

Uzbek-Japan Relations

Politics-Economics-Business

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Tuesday

January 27, 1998

Intercon's Daily

Total Tax Revenues Reach 91 Percent of Target

· Head of the State Tax Service Alexander POCHINOK on Monday announced that Russian Tax revenues totaled almost 250 trillion rubles in 1997. He said tax revenues to the federal budget reached 91 percent of the target figures compared to 84 percent collected in 1996. He estimated the total amount of tax revenues at 249.5 trillion "old" rubles, or 9.3 percent of GDP. POCHINOK said a shortfall in tax revenues was about 23 trillion rubles. The IMF has been pushing for efforts to increase tax collection, in line with their policies of economic reforms. POCHINOK said his department has developed a 1997 blacklist of largest debtors, but the list can be altered as the State Tax Service receives information about continuing offset schemes. At present the blacklist is topped by AvtoVAZ, followed by Gazprom, Kemerovo Railways, Angarsk Petrochemical Mill, Sverdlovenergo, Kuzbassenergo, Ulyanovsk Auto Maker, Sidanko, Northern Oktyabrksaya Railroad, Omsk Refinery, Urals Auto Maker, Moskvich Automobile Plant, Kalinin Nuclear Power Station, and Krasnoyarskenergo. In YELTSIN's 12 point plan for 1998 revealed on Monday, the President plans to reduce levies on business to combat tax evasion which contributes to the growth of a shadow economy. He also hopes to reduce inter-company debts, which created a vicious circle of IOUs or payments in goods and services depriving the government of tax revenues. For 1998, POCHINOK stated total collected tax revenues should reach 7 billion rubles. POCHINOK believes tax reform should be seriously considered along with budget reform. But the questions still remains, how to enforcetax reform policies if voluntary efforts fail.

Ruble's Link To The Dollar Challenged By Euro

· Russians love for the US dollar may be challenged by the release of the European Union's euro. Head of research at Brunswick Warburg, an investment bank in Moscow, Par MELLSTROM explains that, "Most of the Central Bank's decisions right now are linked to the dollar. But over time, they might introduce a ruble band which links the ruble to both the dollar and the euro." Tying the ruble to the euro may help avoid the appreciation problems which have handicapped Russian exporters. A link to the euro may also benefit trade with Europe. If contracts that are now calculated in dollars convert to the euro as the agreed financial unit, European businesses

dealing primarily in euro would lower costs thereby lowering prices for Russian buyers. "Europe is the main source of many Russian imports, so you could have imported inflation. A weak euro would help bring inflation further down in Russia, but a strong euro would increase import prices, which would have an impact on inflation. You might have to raise interest rates in Russia even if you have no domestic inflationary pressures," MELLSTROM told The Wall Street Journal.

Effects of a successful euro, may instigate Russia to develop a ruble zone of its own. A ruble zone, in fact, may not be far off. As Intercon reported January 23, Presidents from Russia, Belarus, Kazakhstan, and Kyrgyzstan agreed to create a customs union and instructed economic and financial institutions to work on developing a common economic space. European economist Anders ASLUND warns however, "The CIS is not the EU, it's more like the British Commonwealth. A ruble zone is not practical."

Russia-US Increase Visa Consular Dues

· Russian Foreign Ministry spokesman Valery NESTERUSHKIN announced on today that consular dues imposed on US citizens for entrance visas to Russia will increase in respectively with those the US plans to raise on Russian citizens who seek entrance to the US. Press attaché of the US embassy in Moscow Richard HOGLAND said dues for the granting of nonimmigration visas to Russian citizens for three months will amount to $95, for 12 months to $195, and for 36 months to $495. The US believes the increase is necessary to compensate for the costs involved with providing visa services. The new fees will go into effect as of February 1, 1998.

Business

Rosneft Tender Seeks Independent Appraiser

· The Russian Ministry for State Property and the Russian Fund of Federal Property announced the opening appraiser contest for the Rosneft privatization today. A starting price at the Rosneft privatization auction, scheduled for 1998, will be fixed by an independent appraiser, who is to win the right through an open contest. The results of the contest will be released February 28, 1998. A contract with the contest winner will be signed on March 2. The starting price for the Rosneft auction should be fixed by March 14, 1998.

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The sale of Rosneft will bring many elite businessmen and powerful financiers together with some of the largest domestic and international oil and gas companies. Companies are interested in Rosneft not because of its daily production of 265,000 barrel, but because of its huge projects in the north and far east of Russia. Terms of the tender recently changed from 75 percent plus one stake to 50 percent plus one stake, with 46 percent to be sold at a later date and the remaining shares given to company employees. The change, however, has not deterred Russian companies seeking western partners to finance the sale. Russian daily newspaper Nezavisimaya Gazeta, part of Boris BEREZOVSKY's media empire, has called the Rosneft sale, "the most important political event of 1998." It even implied that, "Whoever wins the auction not only gets the advantage over the competitors...but will play the leading role in the presidential elections."

Lack of Diamond Quotas Stall Exports

· No diamonds will be exported from Russia due to the lack of an export quota. The general director of the Unified Selling Organization of the Almazy Rossii-Sakha Lev SAFONOV stated Monday that a draft government resolution on the export quota has been approved by all interested ministries and departments, but must still must be reviewed by the Main Law Department of the presidential administration. " At best the export quota will be granted in the first ten days of February, at worst at the end of February," SAFONOV said. Under the July 20, 1997 presidential decree on the procedure of export/import of diamonds, an export quota for precious stones should be issued a month in advance.

for a 2 percent monthly increase. Belarus also has one of the fastest growing economies in Europe, boasting a 10 percent growth in gross domestic product in 1997.

Kuchma Rejects Crimea Election Legislation

· Crimean parliamentary speaker HRYTSENKO has praised President KUCHMA for vetoing an election law as unconstitutional, Itar-Tass reported. KUCHMA said a provision in the legislation would permit only Ukrainian citizens living in Crimea to be elected to its parliament, which he argued is a violation of the Ukrainian Constitution. He also said it is too early to switch to a proportional election system, as stipulated in the bill. Such a move could inflame political infighting on the peninsula, he added. HRYTSENKO called KUCHMA a "constitutional guarantor." Ukrainian parliamentary speaker Aleksandr MOROZ, however, has sharply criticized the veto.

Ukraine Seeks IMF Loan

·Deputy Prime Minister Serhiy TYHYPKO has said the International Monetary Fund (IMF) will approve a 94.1 million gryvna ($49 million) stand-by loan for his country, RFE/RL Newsline reported. TYHYPKO led a delegation to Washington last week for talks with IMF and World Bank officials. He said the meetings went well and that Kiev has made, "important steps in fiscal and monetary policies." An IMF mission is scheduled to go to Kiev in February to evaluate the situation.

South Caucasus & Central Asia

Georgia Hopes CIS Concentrates on Economy

· Georgian President Eduard SHEVARDNADZE said Saturday that countries of the Commonwealth of Independent States (CIS) should pay more attention to economic issues, especially the development of free trade zones. In an interview with CIS Executive Secretary Ivan KOROTCHENYA in Georgian capital Tblisi, SHEVARDNADZE said 70 percent of the decisions made so far within the CIS were political and military, only 30 percent were related to economy. The Georgian president also called on the leaders of the CIS countries to make joint efforts to strengthen friendship between the peoples and refrain from any conflicts including ethnic and religious conflicts.

Last week, the Presidents of Russia, Belarus, Kyr

European Republics

Belarus President To Enforce Econ. Control

· Belarus President Alexander LUKASHENKO said Monday that state regulations are needed to protect the country's industry. "The state will be more active this year in all management of socio-political and economic spheres." He called on the government to implement a state monopoly on oil, tobacco, and car businesses, Reuters reported. LUKASHENKO said the economy has, "preserved many good old forms of management, including state control." Meanwhile, Minsk announced that average monthly inflation was 4.2 percent last year. The budget allowed

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Tuesday

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Intercon's Daily

gyzstan and Kazakhstan met to discuss the creation of a Customs Union. After the meetings, Russian President Boris YELTSIN praised the development of agreements and the working relationship between the "four," stating that the CIS should strive work in the same way. "I am pleased by the way today's deliberations were held—they were not bazaar-bargaining, but serious negotiations between serious leaders...We must strive to make the CIS as a whole work in this way."

Unocal-Turkmenistan Oil Deal

· Pakistan's Fuel and Energy Minister said today that US oil giant Unocal and Afghanistan's Taliban government are close to finalizing a deal to build a 790 mile gas pipeline. The proposed pipeline would bring gas from Turkmenistan to Pakistan through the Taliban controlled territories of Afghanistan. The Turkmen gas brought through this pipeline will cost Pakistan $2. 05 per unit over a period of 30 years, according to an earlier agreement. Pakistan will buy 1.5 billion cubic feet of gas per day from Turkmenistan. Unocal, Taliban, Turkmenistan and Pakistan have already finalized a consortium for the project. The consortium includes Unocal, Turkmenistan, Saudi Delta Oil Company, Crescent Group of Pakistan, RAO Gazprom of Russia, Itochu Corporation and Inpex of Japan and South Korea's Hyundai. Negotiations for the $1.9 billion gas pipeline project started in 1992. But the project couldn't proceed because the proposed pipeline passes through areas controlled by rival Afghan factions.

As Intercon reported on January 21, Unocal is facing a lawsuit in a Texas court over the rights to natural gas concessions in Turkmenistan. The suit is brought against Unocal by Argentina's Birdas Corp., which believes Unocal and Delta Oil Co. illegally interfered in its talks with Turkmenistan. Trial is set to begin in March.

Kazakhstan- Russia On Caspian Oil Rights

· Russian President Boris YELTSIN and his visiting Kazakh President Nursultan NAZARBAYEV in a joint statement on Saturday agreed to instruct their gov

ernments to finalize a draft convention on the Caspian Sea's status by March 15. The draft will later be submitted to leaders of Azerbaijan, Turkmenistan and Iran for further discussion. The statement said, "the working out of the legal status of the Caspian Sea, to be mutually acceptable for interested sides, has been too slow." All the five nations have claimed rights over the oil fields and fishing grounds of the inland sea. Moscow and Kazakhstan's new capital Akmola believe that a, "fair division of the Caspian bottom" should leave in shared use the seasurface for free navigation, with agreed quotas of fishing and environmental programs.

Also in the joint statement, YELTSIN and NAZARBAYEV mentioned the planned construction of oil pipelines along the Caspian Sea. The two presidents said that they hoped the oil pipelines would be built as soon as possible so as to facilitate, "oil transportation from deposits in western Kazakhstan to world markets." By the year 2012, Kazakhstan will produce 170 million tons of oil while its annual domestic consumption will not reach 20 million tons.

Uzbek Prime Minister in Japan

· Uzbekistan's Prime Minister Utkur SULTANOV and Japanese counterpart Ryutaro HASHIMOTO met to discuss International Monetary Fund (IMF) financial reform programs. HASHIMOTO is pleased with Uzbekistan's agreement to carry out IMF related economic reform. He said, "We hope [Uzbekistan] will conclude negotiations with the IMF and the World Bank as early as possible and that a meeting of donors will be held in Tokyo." HASHIMOTO also told SULTANOV that Japan has finished basic studies on yen loans to Uzbekistan and that Tokyo hopes to start negotiations to dispatch volunteers to the country. SULTANOV said it is difficult for Uzbekistan to meet the time frame proposed by the IMF for conditions which are a prerequisite for the international financial aid. He praised Japans' "Eurasia diplomacy," to strengthen Japan's political and economic ties with Uzbekistan and seven other nations in Central Asia and the Caucasus.

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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