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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, February 10, 1998

Russian Federation


Russia Signs Accords In Italy

· President Boris YELTSIN and Italian Prime Minister Romano PRODI today signed numerous documents, including the Plan of Actions in Relations Between the Russian Federation and the Republic of Italy following their talks. YELTSIN said that, "the level of relations between Russia and Italy is without precedent," and the agreements would lead to a further expansion of those relations. The plan calls for bilateral cooperation in various spheres including aviation, space travel, telecommunications, and conversion of the defense industry. According to YELTSIN, "there are no political or any other problems in relations between the two countries, which would hamper our cooperation." Russian First Deputy Prime Minister Boris NEMTSOV and Italian Foreign Minister Lamberto DINI signed a protocol of understanding between the Russian and Italian governments in the sphere of bilateral technical cooperation for 1998-1999. Russian Foreign Minister Yevgeny PRIMAKOV and Lamberto DINI signed an intergovernmental agreement on cooperation in the sphere of culture,education, energy effectiveness and renewable energy sources. Russia and Italy also concluded an agreement on cooperation to combat customs irregularities and problems. An agreement was signed between the Russian Space Agency and the Italian Space Agency on cooperation to study and the use space for peaceful purposes. The last document signed was a credit agreement on contracts for the delivery of equipment within the framework of the presidential program "Children of Russia." The agreement envisages the granting of credits for the building of several factories for producing baby food in Russian provinces. More documents, including economic contracts, will be signed on Wednesday after the meeting of the Russian Presi

dent with representatives of the Russian and Italian business communities YELTSIN's press secretary Sergey YASTRZHEMBSKY said.

New Gas Supply Rules Approved

· Russian Prime Minister Viktor CHERNOMYRDIN signed a decision, approving new rules of gas deliveries in Russian. The new rules establish that when the purchaser consumes too much gas, the supplier has the right to cut its supplies to an established daily quota. If there is no preliminary agreement with the supplier as well as gas transportation or gas distributing organizations, the purchaser is to pay for the volume of gas, taken above the quota set by a contract and to pay the cost of its transportation for every day with the use of the following coefficients: between April 15 and September 15 —1.1 and between September 16 and April 14—1.5. The government decision emphasizes that deliveries and consumption of gas are done only on a payable basis in compliance with a concluded contract.

State Duma Considers Coal Industry Reform

· The Russian State Duma today held parliamentary hearings on reforms of the coal industry. The hearings, which have been organized by the House Committee on Industry, Construction, Transport and the Power Industry, are expected to be attended by members of both Houses of the Russian parliament, representatives of executive power bodies, the authorities of the coal mining regions, and leaders of trade

Today's News Highlights


Russian Ruble Rates

Italy's ECIC Insures Rus Invest.

Russia Continues Econ. Plan

Vaz Sale Recess

LUKARCO Aquires Oil Stake

European Republics

Russia Concerned Over NATO

Lith. Tenders $400M Power Proj.

South Caucasus & Central Asia

Int'l Terrorism in Georgia




February 10, 1998

Intercon's Daily

union organizations. The focus will be on the social protection of miners and their families if liquidation of unprofitable coal mines occurs. Also discussed will be measures which raises the efficency of Russia's coal-industry.


Ruble = 6,041/$1.00 (NY rate)

Ruble = 6,043/$1.00 (CB rate)

Ruble = 6,017|6,069/$1.00 (buy|sell rates)

Italy's ECIC Insures Russian Investments

· Italian Minister of the Treasury, Budget and Economic Planning Carlo Azzello CIAMPI on Monday said Italy's Export Credit Insurance Committee (ECIC) will be permitted to insure capital investments in Russia. CIAMPI made the announcement following talks with Russian First Deputy Prime Minister Boris NEMTSOV. The committee previously refused to provide insurance guarantees for financial operations in Russia because political instability in ex-Soviet republics and their ability to comply with economic and political obligations.

Russia Continues Economic Plan

· Russian President Boris YELTSIN stated on Sunday that Russia will continue its strategic course for market reforms, and assured foreign businessmen that Moscow will create the necessary conditions to attract foreign investments. The President emphasized that economic results from 1997 are evidence that market reforms are working. "However, we are far from believing that all the hardships have been struggled through. Negative tendencies still hold out in certain branches of economy, though changes in the economic situation, and new goals call for new decisions, and active state policy aimed at stimulating economic growth." YELTSIN vowed to follow a "responsible" micro-economic policy this year to defuse inflationary pressures and lower risks for credit and investment.


VAZ Faces Recession in Sales

· After eight months of successful sales, one of Russia' biggest automakers VAZ's plant in Togliatti is facing a recession in sales. The demand for Togliatti cars has dropped by two times, resulting in a great deal of financial problems facing the

automaker. Finished products occupy all lots, roads and lawns outside the plant. There are 17,000 new cars not equipped with electric devices because VAZ has no finances to purchase electric equipment. The prices even for the most prestigious models of VAZ have fallen by 2,000 to 3,000 denominated rubles. The recession period is likely to last until the spring when a seasonal demand for cars increases.

Rus-Ukraine Aircraft Gains Interest

· Russia state military inspector and secretary of the Russian Defense Council Andrei KOKOSHIN said today in Germany, that French President Jacques CHIRAC and German Chancellor Helmut KOHL are drawing up a message to President Boris YELTSIN, in which they will confirm their interest in joining the project of the creation of a military-transport plane for the 21st century on the basis of the Russian-Ukrainian An-70 plane. He said that German Defense Minister Volker RUHE told him Monday that Bonn was ready to join the unique project. "A total of eight European countries voiced their intention to take part in the program. Russia, Ukraine, Britain, France, Spain and the Netherlands took part in the consultations on the creation of the plane, held in Kiev recently," KOKOSHIN said. The An-70 plane is constructed primarily in Ukraine, as well as Russia and Uzbekistan. The plane is capable of carrying 35 to 47 tons of cargo over 3,500 km without refueling. Another advantage is that the plane can take off from a shorten runway of only 500 to 800 meters. The Antonov factory optimistically predicts that European orders could reach 350, while Ukrainian order would account for another 350. European specialist however disagree. "They might sell 20, and if they're really cheap they might sell 50. But to think that they could supply 100 percent of the market is quite optimistic," reported The Financial Times.

LUKARCO Acquires Stake in Caspian Oil

· LUKARCO, a joint venture formed between Atlantic Richfield Co. (Arco) and Russian oil company LUKoil, has assigned an agreement to assume LUKoil's 60 percent interest in the D-222 block of Yalama in Azerbaijan, reported an Arco press release. In 1997, LUKoil and state oil company of Azerbaijan Socar reached an agreement on a comprehensive exploration, development, and production sharing terms for the block 60-40 percent. LUKARCO plans to conduct seismic operations in

When you need to know it as it happens




February 10, 1998

Intercon's Daily

the block during the next two years. LUKARCO, formed in February 1997, also holds a 5 percent interest in the Tengiz oil filed in Kazakhstan and a 12.5 percent interest in the Caspian Pipeline Consortium (CPC) project to build a 900 mile pipeline from Tengiz to the Black Sea.

cents) per KwH. The tender will begin accepting offers March 9. GEC Alsthom, US Enron and a consortium of the Stanton Group, Cal Energy and Duke Power Engineering have expressed preliminary interest. In deciding the winner, BABILIUS said, "we will pay major attention to the reliability of the company and the tempo of the construction." Lithuania produced 14.8 billion KwH of electric energy in 1997, 11.3 billion KwH of which were consumed domestically. Lithuania is capable of exporting 10 billion KwH electric energy per year.

South Caucasus & Central Asia

Georgian Terrorist Attack Has International Links

· Last night, following an unsuccessful assassination attempt, Georgian President Eduard SHEVARDNADZE addressed the nation on television. He expressed his belief that international terrorism was behind the attempt. "It was a well-planned and prepared military operation...I do not exclude that this is a manifestation of international terrorism. I do not see in my country any real forces which could have organized such a terrorist act." He added that, "The time has come for all states and leaders, both in the west and in the east, to rethink the situation in the fight against terrorism." At 11:15 PM (18:20GMT) the presidential motorcade was attacked by grenade-launchers, submachine-guns and other arms. All seven vehicles suffered substantial damage. Three grenades hit the presidential armored car, which was also riddled with bullets. The President was rushed to his residence in a near by police car, while presidential guards returned fire in an exchange that lasted about ten minutes. Intercon sources say that the attackers abandoned their positions, heading towards the Russian Airbase. The scene and surroundings were sealed off by police. All Georgian law-enforcement and power agencies were called to search for attackers and investigate the incident. Also broadcast was SHEVARDNADZE's talk with Interior Minister Lieutenant-General Kakhi TARGAMADZE, who said security was tightened at all key facilities. Border guard chief Major General Valery CHKCHEIDZE tightened sea and land border security, with total checks of anything outgoing. Governmental security chief Vakhtang KUTATELADZE said the terrorists acted with skill. Today the Georgian parliament voted to institute a blockade around all Russian military bases. This action was taken to prevent the

European Republics

Russia Concerned over Baltic NATO Alliance

· Russian President Boris YELTSIN reiterated on Saturday that Russia remains opposed to the bids of Latvia, Lithuania and Estonia to join NATO. In an interview with the Italian newspaper Corriere della Sera before his visit to Italy on February 9-11, YELTSIN said that he was alarmed by some of the first comments by the Baltic signatories of the Partnership with the US Charter (signed January 16), and by the reported pledge of the US to help the three Baltic countries join NATO. "Let me emphasize once again that this scenario has been and remains unacceptable to Russia," YELTSIN was quoted by Interfax news agency. YELTSIN noted what is needed now is not debates on who should be the first to join NATO, but efforts to strengthen security and stability in Europe. "That is the reason why Russia consistently advocates working out a comprehensive security model for our continent and a European Security Charter under the aegis of the OSCE."

Ukraine-Turkey Sign Coastal Pact

· An agreement on the defense of the Black Sea coast was signed between Ukraine and Turkey on Thursday in a bid to boost cooperation in the fight against organized crime. The agreement call for the two sides to take all measures necessary, including the use of coast guardsmen, to eliminate crimes such as arms smuggling, drug trafficking and the illegal sale of cultural relics. Ukraine and Turkey will establish a joint commission to coordinate their operation against anti-maritime crimes.

Lith. Launches $400 M Energy Tender

· Lithuanian Economics Minister Vincas BABILIUS said today that it has launched an international tender for a project worth $400 million to connect the country's energy system with Europe. Under the terms, Lithuania will agree to sell annually to the winning firm no less than six billion KwH of electric energy for 10 years, at an initial price 0.10 litas (2

When you need to know it as it happens




February 10, 1998

Intercon's Daily

escape of perpetrators as occurred in August 1995. Tblisi residents appear calm and are supporting SHEVARDNADZE's statement that the attempt was organized by outside forces.

Kakha SHEVARDENIDZE, who saved the president during the car bomb attack on August 29, 1995, and another bodyguard were killed. An attacker was found dead with a shot in his back possessed a passport which identified him as Visamudin DZHANGALIYEV, 28 year old, a Chechen and resident of Khasavyurt, Daghestan. Mamuka ARESHIDZE, a leader of the parliamentary group campaigning for relations with North Caucasian peoples, said the killed terrorist was unlikely to have been in any connection with Chechen authorities. "The forces that prepared the terrorist act against the Georgian president deliberately included into the terrorist group a citizen of the Chechen nationality in order to drive a wedge into relations between Georgians and Chechens, between Georgia and Chechnya," he said. A local newspaper Resonans reported, that the gunshot to the attacker's back confirms a version suggested by some experts that the terrorist had been deliberately killed by his "colleagues" and left on crime scene to mislead investigators. The Interior Ministry of Russia's republic of Daghestan questioned the fact that a terrorist would take along identity papers when setting off for attack.

In his address SHEVARDNADZE said, "This is the second attempt not only to blow up the President but to blow up Georgia as well...there are forces within Georgia and outside it that are seeking to destabilize the situation in the country." The Georgian Foreign Affairs Ministry issued a statement that the terrorist act, "undermines the very idea of Georgian statehood....the attack has been directed against the independence, stability, and democratic developments not only of Georgia but also of all the nations of the Caucasus." The statement and SHEVARDNADZE point out that the former security chief Igor GEORGADZE, who is the accused attacker of 1995

bombing, could be behind this second attack. GEORGADZE fled on a military transport to Russia escaping arrest and is living well in Moscow, despite Georgian calls for extradition. "These circumstances create a syndrome of impunity and give additional stimulus to the subversive activities of their followers," said the Georgian Foreign Ministry. SHEVARDNADZE said one possible motive for the attempt was to destabilize Georgia and spoil its chances of competing for the right to transport Caspian oil form neighboring Azerbaijan. "Very powerful forces are interested in a different solution of the question linked to the transportation of oil through Georgia."

In an official statement the Ministry of Foreign Affairs of the Chechen Republic of Ichkeria, "strongly and decisively denounces the terrorist act against President SHEVARDNADZE and believes that the act is directed for destabilization of the situation not only in Georgia, but in the Causcasus as a whole. The Ministry of Foreign Affairs of Ichkeria views the terrorist attack in the context of the recent development in Yerevan and ongoing concealed battle for control over the transport routes and the Caspian fuel resources. It is obvious that the organizers of the attack have signaled a start to the campaign for destabilization of the situation in the Transcaucasus." The ministry said it is ready to cooperate with the government of Georgia for the investigation of the terrorist act and protection of the common interests in the region. Abkhazian opposition forces denied responsibilty for the attack.

US Senator BROWNBACK said, "Georgia is one of the key lynchpins of the new Eurasia. It is the most democratic of all the states that succeeded the Soviet Union...If democracy is allowed to fail in Georgia, it is unlikely to succeed anywhere in the region." He added, any outside states that seek to destabilize America's friends in the Caucasus are not states that will be favored with political and economic aid. He stressed, "the attempt to kill President SHEVARDNADZE, one of America's most valued friends, is intolerable and will have consequences."

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

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When you need to know it as it happens