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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, February 12, 1998

Russian Federation


Yeltsin Cuts 2,000 Government Employees

· After returning from Italy according to Russian Television, Russian President Boris YELTSIN has cut 2,000 governmental aids, including Yuri BATURIN, Boris KUZYK, Vecheslav VOLKOV and MALISHEV. These reductions are a part of a framework to trim the government. Yuri BATURIN was the presidential aid for national security. Boris KUZYK was the presidential aid for military cooperation.

Duma Reviews Major Sell-offs

· The chairman of the Duma commission on auction inspection Valery VOROTNIKOV today said the Russian State Duma's probe into the results of four recent auctions is close to completion. "Work of the Duma commission on analysis and inspection of conformity with law of the procedure, terms, results and consequences of sell-offs of stock packages in Svyazinvest, Norilsk Nickel, Tyumen Oil Company, and Sibneft has entered the last stretch." In a meeting to review Svyazinvest Telecommunications Company, the Duma found major irregularities. The starting price for a stake was dumped, the law on the foreign currency violated, and the face value of stocks underrated, VOROTNIKOV said. It also found breaches of the law in conducting the bidding. The commission is going to ask the Russian Prosecutor-General's Office to probe into results of the auction and into officials who were behind the alleged irregularities. The sale of stakes in Norilsk Nickel's will also be investigated. The commission will appeal to the Russian Arbitration Court to recognize the bidding invalid. The commission approved the summary of its working group on bidding for stakes in the Tyumen Oil Company, declaring results invalid. Friday, the commission will review the sell-off of Sibneft. VOROTNIKOV said the

commission's, "main conclusion is that at the stage of money privatization, much more finance could have been obtained for the people, for the budget if the four tenders were approached with all strictness and with observance of interests of the state."

Lebed To Run for Siberian Governor

· Russia's former security secretary and past presidential candidate Alexander LEBED has submitted his nomination to the regional election commission for the Krasnoyarsk governor's post. He will face 15 other candidates for the April 26, election representing the Honor and Motherland Party. LEBED is most known for his negotiations with Chechens in August 1996. In October 1996, he was sacked from the Kremlin amid cabinet infighting. Winning the governor's post would boost LEBED back into the spotlight of politics by making him a member of the Federation Council. This appears to be his first step to becoming a presidential candidate for the 2000 election. In the 1996 elections, LEBED came in a strong third place. Krasnoyarsk is a key industrial region of central Siberia, with plants such as Norilsk Nickel and Krasnoyarsk Aluminum Smelter. Both industries could provide substantial backing for a presidential campaign.

Maskhadov's First Year Review As President

· On February 12, 1997 Aslan MASKHADOV was inaugurated as President of Chechnya after receiving 60 percent of the vote. Reviewing his progress, MASKHADOV is most proud of protecting the

Today's News Highlights


Tax Chief Propses Tariffs Cut

ECI Telecom-MGTS Deal

European Republics

Crimean Autonomy Violated

Turkish PM in Ukraine

South Caucasus & Central Asia

US-Rus Security in Georgia

Azer. To Abolish Death Penalty

Kyrgyz-Chinese Bilateral Talks

Uzbek Cotton Re-Routed




February 12, 1998

Intercon's Daily

Chechen people against a possible war. The Chechen leader described the peace treaty, signed with Russia on May 12, as a history-making document. Commenting on relations with Russia, MASKHADOV said that if there is an independent Chechnya in the Caucasus, Moscow's interests in the Caucasus will be protected. However, relations between Grozny and Moscow have become strained in recent weeks, as Russia fails to fulfill its pledges.

MASKHADOV last week recalled all Chechen ministers and agency heads from Moscow and banned flights from Grozny to the Russian capital. He also threatened to review the protection of the pipeline through Chechnya. Chechen Information Minister Akhmed ZAKAYEV has complained that the only agreement implemented by Moscow last year was on oil transit across Chechnya, which is to Russia's advantage. The oil-transit agreement expired at the end of last year; a new one has not yet been negotiated. The oil-transit fee is at the core of the debate. Under the interim transit deal, a tariff of 43 cents a ton was established. Chechnya had demanded more than $2 a ton. Moscow insisted that 43 cents per ton is the normal transit fee for oil sent by pipeline across Russia. It thereby ignored Chechnya's request to be treated as an independent partner in the deal, RFE/RL Newsline reported. Russkii Telegraf news quoted the new head of Chechnya's oil sector, Shirvani BASAYEV, as saying Chechnya expects oil to start flowing again at a tariff of more than $4 a ton. Chechen analysts see the oil negotiations as a key issue to gain independence status, as economic and political issues are closely linked.

Internally, MASKHADOV has had to face numerous calls for his resignations from rival groups. He has restructured the cabinet and the nature of ministry positions. Crime still runs rampant in the city making kidnapping for ransom commonplace. MASKHADOV has created numerous power structures to combating crime. Unfortunately, these structures and the introduction of capital punishment for kidnapping has done little to alleviate the situation. MASKHADOV said, "I have done all I could. No one could do more in the current situation." The Chechen President has also made significant contacts with international leaders in a bid to win support for its independence.

Due to the assassination attempt on Georgian President Eduard SHEVARDNADZE and the resignation

of Armenia's leader Levon TER-PETROSYAN, MASKHADOV and the Chechen government are concerned about the stability in the Caucasus region. Chechen First Vice-Prime Minister Movldai UDUGOV announced Wednesday that Chechnya has offered to send one of the battalions of its special forces, Spetsnaz, to Georgia to guard President SHEVARDNADZE if Tblisi makes such a request. UDUGOV noted that Chechnya is prepared to provide assistance to Georgian law enforcement agencies to find the terrorists who made an attempt on SHEVARDNADZE's life on Monday. UDUGOV was quoted by the Los Angeles Times that the blame for the attack lays on, "the long arm of Moscow."


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

Ruble = 6,047/$1.00 (CB rate)

Ruble = 6,021|6,073/$1.00 (buy|sell rates)

Tax Chief Proposes Lower Tariffs

· Tax Service chief Alexander POCHINOK said on Wednesday in Vologda that the reduction of energy and transportation tariffs will be critical to increase tax collection in Russia. He expressed hope that the President will make a strong point of this in his annual state-of-the-nation address to the Russian State Duma and the Federation Council on February 17. POCHINOK visited the Cherepovets Metallurgical Mill, Seversta, which increased its tax payments by six times. Asked about the possibility of raising the level of minimum taxable income for individuals, POCHINOK said it will become possible only after the new tax code is approved.

Rus-Japan Discuss Bilateral Investments

· The first round of Rus-Japanese talks on the signing of a bilateral agreement for mutual protection of investments begin today in Moscow. The talks are expected to focus on encouraging Japanese businesses to invest in the Russian economy by means of developing a series of measures to safeguard investments which will be stipulated in a future agreement. The clause on the importance of broadening cooperation in investments between Russia and Japan was included in the YELTSIN-HASHIMOTO Plan adopted by the Presidents at their informal meeting in Krasnoyarsk last November. During a visit to Tokyo by Russian Foreign Minister Yevgeny PRIMAKOV, the two sides agreed

When you need to know it as it happens




February 12, 1998

Intercon's Daily

to ensure that an agreement on mutual protection of investments be signed as soon as possible as the first step on the way to this goal.


ECI Telecom-MGTS Signed A $20 M Contract

· ECI Telecom Ltd. announced the signing of a contract with Moscow City Telephone Network (MGTS) worth $20 million for the supply of synchronous digital hierarchy (SDH) equipment, according to a company press release. This is one of the largest SDH orders to be received in Russia, an officials said. The new Metropolitan network will interconnect different regions around Moscow, providing service to the residents of Moscow. ECI designs, develops, manufactures, and markets digital telecommunications and data transmission systems, enabling network operators to deliver cost-effective services. ECI has installed SDH projects in Belarus, Georgia, Azerbaijan, and Kyrgyzstan.

AssiDoman To Withdrawal from Pulp Plant

· The Swedish forestry group AssiDoman is expected to withdrawal from Segezhabumprom, one of Russia's largest pulp and paper plant causing a write off worth Skr 500 million ($61.6 million). Since acquiring a 57 percent stake in the plant, Assi has been plagued by its Russian partner's financial problems involving tax liabilities predating the joint venture, frozen accounts, refusal to supply loan guarantees, and disagreements over funding modernization plans. Assi last month shut down the plant in an attempt to force its Russian partners to equally finance modernization cost. The plant supplies 80 percent of Russia's paper sacks and employs 5,500 people. Assi's chief director Lennart AHLGREN said that its withdrawal from Segezhabumprom will not effect Assi's plans to expand in Russia. Last month, AHLGREN stated that Assi firmly believed in the Russian market, reported The Financial Times.

decree placing Yalta under central government rule, rather than that of its elected government. This decree western diplomats say violates the Ukrainian constitution and the autonomy of Crimea. The Crimea, a resort city in the past for Soviet elite, has about 174 hotels and sanatoria scheduled to be sold. Former Mayor of Yalta Alexander KALYUS, who was replaced as a result of the KUCHMA decree, said, "The hotels are worth a mere $2 billion. The land they are on, though, is worth at least $40 billion," The Financial Times reported. Last week the turmoil turned ugly as the deputy prime minister of the Crimea Republic Alexander SAFONTSEV was injured by a bomb explosion as he entered a local hotel. The Crimea parliament has scheduled a vote on a new referendum as to whether it should secede from Ukraine and join Russia.

Turkish Prime Minister Visits Ukraine

· Turkish Prime Minister Mesut YILMAZ and the Ukrainian leadership began a series of talks today in Kiev focusing on economic issues and concluding with the signing bilateral documents. YILMAZ will meet with Ukrainian President Leonid KUCHMA, Prime Minister Valery PUSTOVOITENKO, parliament speaker Alexander MOROZ and businessmen as well as the Crimean government head Anatoly FRANCHUK and members of the Crimean Turkish community. The sides will discuss ways to intensify bilateral trade, economic, scientific and technical relations, boost the investment cooperation and interaction in international organizations. It is expected that the two countries will discuss alternative routes for oil to reach Ukraine. Turkmenistan and Ukraine reached an agreement on the annual supplies of 20 billion cubic meters of Turkmen gas.

South Caucasus & Central Asia

US-Russian Special Teams Aid Georgia

· US and Russian special security agents arrived in Georgia today and investigated the scene of Monday's military style attack on Georgian President Eduard SHEVARDNADZE. The twin-track investigation did not release any new leads. US State Department spokesman James RUBIN expressed Washington's concern saying, "We condemn acts of terrorism in general and want to make clear our support for President SHEVARDNADZE and for peace and stability in the Caucasus." RUBIN de

European Republics

Crimea Tensions Run Hot Over Pres. Decree

· Ukraine's privatization plans have met a snag, which may lead to the secession of the Crimea peninsula. The Crimea's ethnic disputes, commercial rivalries, and random acts of violence are increasing due to a Presidential decree. Three weeks ago Ukraine President Leonid KUCHMA issued a

When you need to know it as it happens




February 12, 1998

Intercon's Daily

clined to speculate on the attacker's identity. The Chechen rebel leader Salman RADUIEV has claimed responsibility for the attack. Georgian officials doubt RADUIEV's claims because of the strange context which this statement was made. Some speculate that RADUIEV may have even been paid to claim responsibility in an effort to deflect attention from the true perpetrators.

Azerbaijan-Lebanon Sign Agreements

· Azerbaijan President Geidar ALIYEV and Lebanese Prime Minister Rafik HARIRI ended their talks on Wednesday by signing four intergovernmental agreements. They include an agreement to promote trade and economic cooperation, to encourage and protect investments, to cooperate with air communication and mutual assistance. ALIYEV stressed that Azerbaijan draws special significance to the development of relations with Lebanon. HARIRI said that cooperation between the two countries has good prospects, especially in the economic area. He said Beirut will encourage Lebanese entrepreneurs to invest in Azerbaijan's economy.

Azerbaijan To Abolish Death Penalty

· Azerbaijan's parliament on Tuesday approved a presidential proposal to abolish the death penalty. The law will come into force when President Geidar ALIYEV signs it. The president said the 128 people on death row will be spared and given long prison terms. Azerbaijan abolished capital punishment of women and men over 65 in 1993 and imposed a moratorium on the death penalty. No executions have been carried out since. Many believe ALIYEV and Azeri lawmakers were motivated by Azerbaijan's desire to join the Council of Europe, which requires member nations to bring it laws in line with European norms. Neighboring Georgia abolished the death penalty in December, 1997.

Kyrgyz-Chinese Bilateral Talks

· Kyrgyzstan's Foreign Minister Muratbek YIMANALIYEV met with Chinese Premier LI Peng and counter part QIAN Quichen today in Beijing to

continue strengthening six years of bilateral relations. YIMANALIYEV said that the Kyrgyzstan President, government and people treasure the current situation and accomplishment of bilateral relations. QIAN said that the two sides have cooperated in politics, economy, trade, science, technology and culture. He added that developing long-term and stable relations with Kyrgyzstan is an important part of China's good-neighbors' foreign policy. The Kyrgyz foreign minister agreed and said the two sides should continue to expand this relationship. QIAN and YIMANALIYEV also discussed international issues of common concern.

Uzbekistan Reduces Cotton Exports Via Russia

· Uzbekistan has decided to reduce its cotton exports via the Russian Rail System and reroute its exports through Georgia and the Black Sea. Uzbek officials claim massive thefts of at least 24 carloads of cotton is behind the decision to reduce the volume of cotton through Russia from 677,000 tons in 1997 to 544,000 tons, and increase transportation through the Caucasus from 323,000 tons in 1997 to 460,000 tons, as reported in The Journal of Commerce. Uzbekistan has no guarantees that cargo will safely reach Russian, Ukraine and Latvian ports. Last May, Uzbekistan, Turkmenistan, Azerbaijan and Georgia agreed to restore the Trans-Caucasian corridor, providing 50 percent tariff discounts and first class service to participating countries. Because of this agreement, Uzbekistan believes its shift to the Caucasus route will be cheaper, and more efficient.

Russian officials stress that theft isn't the problem, rather Uzbekistan like other former Soviet states is seeking non-Russian market routes at any price. Vice President of Ingostrakh, Russia's principal cargo insurer, Yegor VISHNEVSKY said, "They want to find a reason to transport through Georgia. They would steal from themselves for 24 hours to create the reason." The Russian Rail System will lose substantial funds because of the Uzbek reduction. In 1997, it earned $36.5 million for Uzbek cotton transportation, an increase of $12 million over 1996.

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