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

Thursday, January 29, 1998

a wide range of issues including economic growth and START II treaty. YELTSIN called for the ratification of the Russian-American START II treaty. He said, "It fully meets the national interests of Russia." He also has declared that, "The current year must become a period of economic growth." SELEZNYOV pointed out that, "GDP growth was only 0.4 percent. This is a very low indicator. Therefore, some concrete measures are to be worked out to raise it still further." He noted Russia cannot live with such a small GDP increase. At the meeting, YELTSIN rejected SELEZNYOV`s idea to form a coalition government which was proposed in December.

Economy

Ruble = 6,051/$1.00 (NY rate)

Ruble = 6,025/$1.00 (CB rate)

Ruble = 5,998|6,052/$1.00 (buy|sell rates)

Foreign Trade Grew By 1.5 Percent

· Russia's 1997 foreign trade turnover grew by 1.5 percent, compared to 1996 figures, reaching $153.6 billion. The trade turnover's growth occurred due to the 7.4 percent increase of import trade, which totaled $66.9 billion. Export trade dropped by 2.7 percent and amounted to $86.7 billion. Russia's foreign trade balance decreased by $7 billion in 1997. Russia's trade balance with the CIS nations was favorable. Russia's trade turnover with the other foreign nations increased in 1997 by 2.1 percent and equaled $118.3 billion. Export trade dropped by

Russian Federation

Politics

Primakov Meets Spanish Counterpart

· Russian Foreign Minister Yevgeny PRIMAKOV and his Spanish counterpart Abel MATUTES met today in Madrid to discuss trade and economic cooperation between the two countries. The two nations reviewed the possibility of signing a convention to avoid double taxation on incomes and property, an agreement on promotion and mutual protection of investments, as well as some measures to expand and enhance cooperation, above all in the trade and economic sphere. "Spain's influence on the European continent and on world affairs is increasing. For this reason, we are interested in Spain as not only a trade partner with a rapidly growing economy and serious prospects for building investment in our markets. We are greatly interested in Spain as a political partner as well," PRIMAKOV said. The two diplomats exchanged views on some international issues of mutual concern. MATUTES noted that the results of the Russian minister's visit will facilitate the expansion of relations between the two countries in various areas and the strengthening of security and stability in Europe. PRIMAKOV will also meet with Spanish Prime Minister Jose Maria AZNAR, Madrid Mayor Jose Maria Alvarez DEL MANSANO.

After conferring with Russian special envoy Viktor POSUVALYUK, PRIMAKOV will meet US Secretary of State Madeleine Albright on Friday and discuss results of POSUVALYUK's visit to Baghdad.

"Big Four" Discuss Economy and START II

· The "Big Four" leaders of Russia, President Boris YELTSIN, Prime Minister Viktor CHERNOMYRDIN, Duma speaker Gennady SELEZNYOV and Federation Council Yegor STROYEV, met today to discuss

Today's News Highlights

Russia

EBRD/ Unexim Bank JV

Gazprom 1997 Performance

Chernomyrdin To DecideRosneft

European Republics

New Estonian Interior Minister

Lukashenko in Yugoslavia

South Caucasus & Central Asia

Azeri Casinos Outlawed

Kazakhstan Currency Rating

Ukraine-Turkmen Agreements

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4.2 percent and totaled 68.9 billion dollars, while import trade grew by 12.3 percent to $49.4 billion.

Export-Import Bank of Japan Eases Loan Terms

· The Export-Import Bank of Japan will ease Russia's loan terms in an effort to foster greater economic cooperation between the two countries, Kyodo reported today. The governor of the governmental lending agency Hiroshi YASUDA said the bank will remove a credit line of $1.2 billion for Russia and instead provide loans on a project-by-project basis. The change in the bank's lending policy is due to the recent stabilization of the Russian economy and the growing momentum toward the conclusion of a peace treaty between the two countries, YASUDA said. While the Export-Import Bank has so far required the Russian government's repayment guarantee for loans, YASUDA said his bank will consider accepting commitments by creditworthy Russian commercial banks in lieu of government guarantees.

Business

EBRD/Unexim Bank Form New Joint Stock Bank

· The Russian Unexim Bank and the European Bank for Reconstruction and Development (EBRD) have decided to form a new joint-stock bank for tapping the oil deposits on the Sakhalin shelf. It was agreed that the authorized capital of the new bank, named Sakhunexim Bank, will range from $6 to 10 million. 35 percent of this sum will be contributed by the Sakhalin Regional Administration, 35 percent by the Unexim Bank, 20 percent by the EBRD, and the remaining 10 percent by local enterprises. The new bank's main function will be to finance the most promising investment projects on the island, including the projects to develop the Sakhalin shelf. The new bank will contribute to the intensive development of the local financial market. The opening of the Sakhunexim Bank is schedule for this spring.

Gazprom's 1997 Performance

· Leonid GRYAZNOV general director of Gorizont Co., financial advisers to Gazprom, said the main result of Russian gas giant Gazprom's 1997 performance was, "the transfer from volume factors to cash factors," to the company. Gas deliveries to Russian consumers decreased from 304 to 301 billion cubic meters due to the termination of deliveries to nonpayers. Export deliveries to Europe decreased from 123.5 billion cubic meters in 1996 to 116.8

billion in 1997. Gazprom's overall gas exports last year diminished from 196.5 billion cubic meters to 188.9 billion. Nonpayment to Gazprom made 71.5 trillion rubles, exceeding its sales proceeds received for 1996. However, the share of cash over the period went up from 7 percent to 15 percent by year end.

RadioPAGE Inc. and Multi-Page Merge

· M2 Communications' SEGOL RadioPAGE Inc. and Russian paging operator Multi-Page on Wednesday joined forces in a merger that marks the first significant move toward the consolidation of Russia's highly fragmented paging industry. According to the agreement, the merger will secure the largest paging subscriber base in the Moscow and the surrounding region in Russia and position the combined company for solid growth in the years ahead. The RadioPAGE's Moscow networks currently serve 25,000 subscribers and the Multi-Page network currently serves 15,000 subscribers. Russia is considered an early stage paging market, with only approximately 150,000 "active" paging subscribers.

SEGOL RadioPAGE Inc. will provide an undisclosed multi-million dollar cash infusion to its newly formed subsidiary, EnergoNET, which will manage the expansion of the new business. Following the merger, Multi-Page will hold three of the seven seats on the new Board of Directors that includes representation from Russia's mammoth energy utility Mosenergo, an international major paging operator Champion Technology Holdings, Ltd., and The Walter Group, a US based telecommunications consulting and project management group.

Chernomyrdin To Decide Rosneft's Plan

· First Deputy Prime Minister Boris NEMTSOV announced Monday that Prime Minister Viktor CHERNOMYRDIN will soon select one of three possible privatization plans for Rosneft, the last major fully state-owned Russian oil company. The sell-off of the oil giant is expected to be the Russian business event of the year and has already attracted the interest of the country's most powerful financiers. Royal/Dutch Shell and British Petroleum teamed up with Russian oil companies and financial institutions are seeking to bid for Rosneft. This high-powered interest has made the terms of the auction hugely controversial, prompting the Russian government to seek outside help in structuring the sale. The unusual decision suggests that officials hope to avoid

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the scandals which plagued last year's privatization. "Rosneft is a very important company for Russia, and it has already provoked a lot of political speculation," Sergei MOLOZHAVYI, deputy minister of privatization, said. He added that the privatization ministry, which lost two ministers during the past six months due to corruption, believed bringing in an outside adviser would help ensure the auction fairness. Companies have until February 28 to submit their bids in a public competition to advise the government on the sale. The winner, to be announced on March 2, will suggest a starting price for the sale and come up with a valuation by March 14. As Intercon reported January 23, Royal/Dutch Shell and LUKoil have criticized proposals to sell off less than 75 percent of the company. They believe the sale of 50 percent plus one share would make the investment much less attractive. A cabinet minister said last week that Rosneft would fetch $2 billion, but many industry analysts have put the company's value at closer to $1.5 billion. But government spokesman Igor SHABDURASULOV stressed that the government's main goal in privatizing Rosneft is to receive the maximum possible revenues for the budget.

Meanwhile, deputy chief executive Grigory NAPOLOV announced Rosneft's 1998 business plan to increase oil output to at least 13.5 million tons. Rosneft produced 13.04 million tons in 1997 and increase from 12.74 million tons in 1996. NAPOLOV said Rosneft expects pre-tax profit to Russian accounting standards on a cash basis to be around $2 billion rubles.

not the style of his government, it insults other ministers." LEPIKSON believes that his dismissal was not due to sharp pronouncements about the other ministers, but because criminal cases brought against three prominent Estonian politicians are almost ready to be filed with the court. LEPIKSON told a press conference today that several more scandalous cases will be revealed.

Kuchma-Gore Commission To Meet

· A regular meeting of the committee for trade and investment of the Kuchma-Gore Ukrainian-US commission on cooperation will be held in Kiev today. The US intends to discuss legal aspects of the investors' activity in Ukraine, and the mechanism of settling issues involved in investment. The question of privatization in Ukraine is also on the agenda. Americans are "dissatisfied" with privatization's pace. The pace of the development of small and medium businesses where Americans prefer to invest funds do not suit them. Washington insists on the participation of US capital in the privatization of enterprises in the spheres of energy and agriculture, but Ukraine declines such offers. The committee on trade and investment is one of the four committees of the Kuchma-Gore commission.

Belarus-Yugoslavia Summit

· President of the Federal Republic of Yugoslavia Slobodan MILOSEVIC met Wednesday with visiting Belarus President Alexander LUKASHENKO. The Presidents agreed to further develop a comprehensive relationship between the two countries, especially their economic cooperation, the Tanjug news agency reported. Both Presidents said Yugoslavia and Belarus would actively participate in the process of European integration if their national sovereignty and independence are respected. LUKASHENKO will also meet with Prime Minister Radoje KONTIC, and speakers of both houses of the Yugoslavian parliament.

South Caucasus & Central Asia

Armenia Receives $14.5 M WB Loan

· The World Bank approved Tuesday a $14.5 million loan to support agricultural reform in Armenia. The credit will be used to increase agricultural productivity by supporting the development of private sector farming and agro-processing, and by strengthening agricultural institutions and services.

European Republics

New Estonian Interior Minister

· Estonian Prime Minister Mart SIIMANN has appointed Chairman of the board of the republic's Savings Bank Olari TAAL to the post of Estonian Interior Minister. TAAL, who is an engineer by profession, held the position of Economics Minister in one of the previous governments of Estonia. TAAL is noted as being one of the most independent personalities in Estonia.

TAAL replaces Robert LEPIKSON, who was dismissed Wednesday for, "impolite attacks" on cabinet members, specifically Foreign Minister Toomas IVES and Defense Minister Andrus OOVEL. A government spokesman explained, "The Premier thinks this is

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A Tuesday press release said the loan is to be used to set up a network of rural lending associations to mobilize resources and provide minor private farmers and minor agricultural farms with loans and financial services. Part of the loan is to go into business plans laying out middle term needs of newly privatized agro-industrial companies in investment. The bank stated that Armenia had carried out one of the most comprehensive agricultural reforms since became independent.

Azerbaijan Outlaws Casinos

· Azerbaijan President Geidar ALIYEV issued a resolution on fighting economic crime on Wednesday which outlaws casinos, gambling and entertainment clubs. In the decree, the Azeri president expressed concern over a growing number of gambling and night clubs in the country which challenge Azeri moral standards. It was pointed out that such enterprises of entertainment business cause damage to the national economy and simultaneously create conditions for legalization of illicit money and other crimes. The President instructed the government to plan and submit a state program in a month's time to, "liquidate the sources of immorality, drug abuse, the wide distribution of spirits, and the publication or broadcast of material which contradicts the national tradition of the nation and harms the moral fabric of the citizens of Azerbaijan."

Kazakhstan's Currency Ratings Raised

· Fitch IBCA upgraded from BB- to BB Kazakhstan's long term foreign currency rating, which applies to senior unsecured sovereign debt issues. Fitch IBCA, in a press release, affirms Kazakhstan's short term foreign currency rating at B and assigns a long term local currency the rating of BBB-. The following factors contributed to Fitch IBCA raising the currency rating. Kazakh confidence in their currency, the tenge, improved. Inflation reduced to just over 11 percent by December 1997. Gross domestic product grew by more than 2 percent in 1997. Oil production rose by 12 percent and natural gas by 24 percent. The government hopes

the economy will continue to improve as it follows a strict reform program. Foreign direct investment per capita is the highest in all the CIS.

Ukraine President in Turkmenistan

· Ukrainian President Leonid KUCHMA and Turkmen President Saparmurat NIYAZOV today signed an agreement to deliver 20 billion cubic meters of Turkmen natural gas annually to Ukraine until 2005. Earlier, the leaders agreed that 15 billion cubic meters of Turkmen gas will be supplies this year. The controversial issue of price has not been determined. Gas deliveries to Ukraine stopped in March due to a dispute with Turkmenrosgaz, the Turkmenistan-Russian joint venture.

Russia and Turkmenistan still have not resolved their price differences. Russia wants to pay $28-$32 per 1,000 cubic meters and pay for it with a currency-goods ratio of 30 to 70. This Turkmen believes is unacceptable and insists it will hold out for $42. NIYAZOV said, "How can we understand their proposal when they themselves sell to Ukraine for $80 per 1,000 cubic meters and to Turkey for $104. The Soviet period is over and we must now do business in a civilized way." The two leaders sent a joint letter to Russian President Boris YELTSIN on the transit of the gas, which must pass through Russian-owned pipelines. NIYAZOV told reporters that, "It is proposed that Russia be paid the same transit fee as is paid for Russian gas transiting Ukrainian territory." KUCHMA is expected to discuss the transit topic when he meets with YELTSIN on Friday. In an effort to reduce Turkmenistan's dependence on Russian pipelines, NIYAZOV expressed hope that by 2001, Turkmenistan will be able to deliver gas to Ukraine through a pipeline going across Iran and Turkey.

Along with 18 documents to promote equal bilateral relations, Turkmenistan and Ukraine signed an agreement to develop trade and economic relations in a free trade zone. Turkmenistan and Ukraine are expected top set up industrial and financial groups to strengthen cooperation and promote investments.

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