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

Thursday, February 19, 1998

Russian Federation

Politics

IMF Negotiations/ Fiscal Policy Changes

· A meeting between President Boris YELTSIN and International Monetary Fund (IMF) Managing Director Michel CAMDESSUS took place in the Kremlin today. CAMDESSUS revealed that the IMF and the government had agreed to a program for 1998: the provision of credit tranches to Russia would proceed in accordance with an earlier time-table. He said that the IMF considers it is essential for Russia to adopt a 1998 budget, even if with amendments. He suggested that Russia extend the validity of the current credit agreement until the end of 1999 with an appropriate allocation of an additional credit. YELTSIN expressed a steady resolve of the Russian authorities to go ahead with the reform policy, proceeding from Russia's national interests.

First Vice-Premier Anatoly CHUBAIS said the government will lower the maximum rates of import tariffs over time, not immediately as IMF experts insist. He stated that strategically, in the long term, "it will be undoubtedly essential to lower them." If, the rates of import tariffs are reduced, Russia must urge its trading partners abroad to lower similar import tariffs on Russian commodities, CHUBAIS emphasized. Prime Minister Viktor CHERNOMYRDIN took to task the second snag in Wednesday's negotiations by stating that Russia will not agree to cancel the Presidential Decree aimed at supporting the national automobile industry. IMF experts insist on a cancellation of privileges to foreign investors, the privileges provided by the Presidential Decree. The Russian government is convinced that the Decree-provided privileges are a major step in attracting foreign investments to the Russian automobile industry. CHERNOMYRDIN positively concluded that, "The government assured the IMF that it would do every

thing to keep the Russian economy within the planned parameters, despite the consequences of the world financial crisis."

Russian-Armenian Relations

· Russia's State Duma chairman Gennady SELEZNYOV and Armenian parliament speaker Khasrof ARUTYUNYAN met on Wednesday in Moscow. They stressed the exceptional importance of strategic partnership between their countries. SELEZNYOV noted that Russia and Armenia are, "long-standing strategic partners and neighbors, and therefore we simply have to develop as close economic, scientific, technical and cultural contacts as possible." He believes that special attention should be paid to inter- parliamentary ties between the State Duma and the National Assembly of Armenia. Russia is keen on developing ties to Armenia while it faces political turmoil. These ties, however, may become a noose around the country's ability to continue developing a balanced foreign policy and strengthening independent sovereignty. As Intercon reported on February 3, one diplomat reflected after TER-PETROSYAN's resignation that, "Moscow now is fully in control of Armenia and has consolidated its strategy to prevent `big oil' [Caspian oil] from flowing through the Caucasus to Turkey."

Russia To Build Turn Key Nuclear Plant For Iran

·Russian Nuclear Energy Minister Viktor MIKHAILOV announced that Russia will build a controversial nuclear plant in Bushehr, Iran

Today's News Highlights

Russia

Russia to Pay Soviet Com. Debt

Yuksi to Defend Shareholders

BPE-Sidanco Joint Venture

European Republics

Ukraine-Uzbek Relations

Luzhkov to Fight for Crimea

South Caucasus & Central Asia

Four UN Observers Kidnapped

Lebed Trip to NK A Violation?

Turkmen Sign Two Oil Accords

Politics-Economics-Business

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Thursday

February 19, 1998

Intercon's Daily

rather than provide assistance to Iran. He stated that Iran has been unable to meet construction deadlines, which delayed the project for 20 months. The US has claims the plant will help Iran gain sensitive nuclear weapons technology. Russia, however, claims the $780 million plant is a commercial project and says it will not share nuclear secrets with Iran.

This comment is similar to MIKHAILOV's recent statements regarding Iraq. He said, "The Soviet Union cooperated with Iraq in the nuclear field, but it did not transfer any special facilities or military nuclear technologies to it... Several years ago, Iraq shut down its research reactors and Russia took away all the fuel that wad been supplied for them. He added that Iraq possesses no nuclear threat, but warned that if Iraq has chemical or biological weapons, they, "pose a much greater threat" in case of strikes. In January, Russian Prime Minister Viktor CHERNOMYRDIN began requiring commercial enterprises to apply for licenses to export arms-related goods to developing countries. The initiative is aimed to pacify fears in the West about arms technology transfers to Iran and other non-nuclear states.

Economy

Ruble = 6,057/$1.00 (NY rate)

Ruble = 6,059/$1.00 (CB rate)

Ruble = 6,033|6,085/$1.00 (buy|sell rates)

Russia to Pay Soviet Commercial Debt

· Chairman of the Vneshekonombank board Andrei KOSTIN said that Russia will start paying the Soviet commercial debt by the end of 1998. He said that the settlement of commercial debts is one the main problems facing the bank. The bank will issue bills of exchange this year in the amount sufficient to cover Soviet foreign trade companies' debts to their Western partners. These debts are comparable to Russia's debt to the London Club. He noted that this is an old problem, but it was postponed for an indefinite time following the conclusion of agreements with the London and Paris clubs. KOSTIN then added that, "Now Russia is returning to this problem."

Integrate Economy into World Economy

· State Duma Speaker Gennady SELEZNYOV said that the Russian economy is ready for full-scale international cooperation and for "integration into

the world economy." SELEZNYOV emphasized the importance of foreign capital for an economic upsurge of the country. He admitted that foreign investors have complaints with regards to the Russian side. "We share some of them while other ones are far-fetched and brought about by lack of knowledge about the state of affairs in Russia," he pointed out. He emphasized that the Duma is working on legislation to develop rules for investment activities. Those rules, "must be predictable, transparent and reliable. We must protect foreign investors from unlawful exaction by authorities, corrupt bureaucrats and the rampant lawless practices of criminal entities," he stressed. SELEZNYOV called on foreign companies not to limit themselves to portfolio investments but invest their capital in the real Russian economic sector , research-intensive branches, where a shortage of funds is felt, as well as to Russia's regions.

Business

Yuksi Creates Shareholder's Rights Board

· Yuksi, Russia's largest oil company created from the merger of Yukos and Sibneft, announced the creation of a new shareholder's rights board made up of western consultants and international bankers to resolve shareholders disputes and create a "charter" to ensure the company does not violate shareholder's rights in the future. The announcement follows a decision by the Federal Securities Commission that the transfer of administrative powers from subsidiaries Yuganskneftegaz and Samaraneftegaz to Yukos was illegal. The shareholder's rights issue has damaged Russia's struggling reputation with foreign investors and pushed the issue into the political spotlight. Yuksi President Mikhail KHODORKOVSKY said, "Vocal greenmailers are now using the western media to pursue unreasonable returns on their investments in Russia, seeking to align themselves with the legitimate expectations of other minority shareholders." President of Dart Management Michael HUNTER, representing Ken DART who led the campaign against Yuksi, said the claims were, "absolute rubbish. We have never sought preferential treatment. We are seeking fairness for all shareholders." Yuksi's chief financial officer Yevgeny SHVIDLER said the board's charter will, "form the cornerstone of our corporate governance policies in the years ahead."

When you need to know it as it happens

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Thursday

February 19, 1998

Intercon's Daily

BPE-Sidanco JV To Develop Siberian Gas

· Russia's oil company Sidanco and British Petroleum Exploitation (BPE) have launched a joint venture to develop the Kovyktinskoye gas field in Siberia with shares being split 55 to 45 respectively. BPE President Richard ALVER said the branch of British Petroleum will contribute 60 percent of shares of RUSIA-Petroleum to the new venture. The BPE plans to invest $172 million in estimating and confirming reserves of the Kovyktinskoye deposit, which contains gas condensate. China, Japan and South Korea have expressed interest in gas supplies from the deposit located in the Irkutsk region. ALVER said he expects investors to inject funds in the gas-field development, building a pipeline to export gas, and creating a network of gas distributors and sellers. British Petroleum and Sidanco, which is controlled by Unexim Bank of Russia, sealed a strategic partnership accord in late 1997. They will participate in the development of other deposits in eastern Russia, starting from Sakhalin shelf oil-fields.

traditional supplier of cotton, ferrous and rare-earth metals to Ukraine. The export of Uzbekistan-produced gas began last year. "The main task now is to raise the effectiveness of cooperation between the two countries in the interests of the peoples of Ukraine and Uzbekistan," SMETANIN stressed.

Crimean Peninsula's Fate?

· During a speech to World War II veterans on Tuesday, Moscow Mayor Yuri LUZHKOV vowed that, "we will still fight for Sevastopol," Itar-Tass reported. LUZHKOV criticized what he called the "forced Ukrainianization" taking place in the Crimean port, where the Black Sea Fleet is based. He will visit Sevastopol, which he has repeatedly declared a Russian city, on Saturday. LUZHKOV confirmed that the city of Moscow will continue to fund the construction of housing for Russian sailors based in Sevastopol. LUZHKOV also told the veterans that Russia must develop a strong defense industry. Comment: These sentiments reiterate LUZHKOV's statement on the 850th anniversay of Moscow, where he said the day will come when the lands once acquired by Peter the Great will be ruled by Russia again. LUZHKOV's fighting words , as well as other Russian nationalists, who call for a strong Russian Military posture, show just why Ukraine and the Baltic nations are looking toward NATO for protection of there sovereignty.

More than half of Crimea's residents recently polled by the local center of humanitarian studies said Ukraine's policy with regard to their peninsula was "colonial". About one fourth of those polled disagreed with this definition, while one in five was undecided.

South Caucasus & Central Asia

UN Kidnappers Demand Terrorist Release

· Four UN military observers and some women and children from the village of Jikhashkari were taken hostage when 20 men assaulted the United Nations Observer Mission in Georgia's office located in Zugdidi and fled to Dzhikhaskari. Georgian security forces have surrounded the remote village and blocked all possible escape routes. Negotiations are underway. Head of the Interior Ministry's press center Valeryan GOGOLADZE said, "Those holding the military observers of the United Nations have

European Republics

Uzbek-Ukraine To Sign Accords

· Uzbekistan President Islam KARIMOV met with Ukrainian President Leonid KUCHMA, parliament speaker Alexander MOROZ and Prime Minister Valery PUSTOVOITENKO. The two Presidents will chair bilateral negotiations. A new political agreement between Ukraine and Uzbekistan will be signed during the three day visit. The 1993 political treaty, "has grown outdated and exhausted because the level of bilateral and multilateral relations and the attitude of both countries to the CIS are now different," the spokesman for the Ukrainian Foreign Ministry Vladimir SOLOVEI added. In addition to the political treaty, the sides will sign a consular convention, an agreement on cooperation in the intellectual property, and an agreement on cooperation in the environmental protection and rational nature uses. "Trade turnover between the two countries has grown more than 15-fold since 1992," Vladimir SMETANIN, the Ambassador of Ukraine to Uzbekistan told reporters. "The two sides devote special attention to the development of high-technology branches, as exemplified by cooperation between Tashkent's Chkalov aircraft producing amalgamation and Kiev's Antonov Aircraft Designing Bureau," the Ambassador emphasized. Uzbekistan is a

When you need to know it as it happens

Politics-Economics-Business

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Thursday

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Intercon's Daily

demanded freedom for all those arrested by police in connection with the terrorist attack on February 9 against President Eduard SHEVARDNADZE." One kidnapper stated, "If our demands are not met the hostages will be shot, and we will take military action against SHEVARDNADZE." The Georgian Foreign Affairs Ministry has stated, "This act...is another manifestation of international terrorism and is directed against the independence, stability and democratic development of Georgia as well as...all the states of the Caucasus. Once more does this act, confirm, that beyond such terrorist acts stands serious forces which are interest in creating chaotic situation in Georgia, and hampering the current positive processes in the region." The ministry criticized the CIS peacekeeping forces, which did not take any measures to prevent the terrorists' actions in the security zone. Comment: The circumstances surrounding the failure of Russian peacekeepers to prevent this attack or respond to the kidnaping will no doubt continue to fuel speculation that the attack was organized and paid for by forces outside Georgia. Georgian security forces continue to negotiate with the kidnappers, but maintain they will not compromise the laws of independent Georgia. Intercon sources report that the kidnappers have admitted their participation in the attack on SHEVARDNADZE. One of the suspects captured in connection with the assassination attempt is Gennady KOBALIA, a distant relative of the former commander of ousted President Zviad GAMSAKHURDIA's private army. Russian Prosecutor-General Yuri SKURATOV again affirmed Russia's readiness to assist the Georgian investigation into the assassination attempt, but denied any knowledge of the whereabouts of former Georgian Security Minister Igor GIORGADZE, who fled to Russia following the August 1995 car bomb attack on SHEVARDNADZE.

WB Supports Georgian Cultural Heritage

· The World Bank's (WB) acting vice president for Europe and Central Asian region Anil SOOD and Georgian Ambassador Tedo JAPARIDZE Wednesday signed a $4.47 million equivalent Cultural Heri

tage Project Credit for Georgia to improve the management, promotion, and preservation of the country's cultural heritage. The project will stimulate the tourism industry and improve landscapes and the environment around cultural heritage sites. Member of the project team Betsy MCGEAN said, "The credit exemplifies the World Bank's new adaptable lending, which is simpler, smaller, and prepared more efficiently than traditional project loans. It is also part of a larger, cooperative effort between the Georgian Government, the Bank, and international organizations and governments to support Georgia during a difficult economic transition."

Lebed's Trip to Nagorno-Karabakh a Violation?

· Azerbaijan Presidential foreign policy adviser Vafa GULIZADE said Wednesday that former Russian Security Council Secretary Alexander LEBED's visit to Nagorno-Karabakh is a, "violation of international ethics and international norms." LEBED was one of some 30 Russian political figures who flew to Stepanakert via Yerevan to participate in the 10th anniversary celebrations of the Nagorno-Karabakh Oblast Soviet's adoption of an appeal to the Soviet leadership to transfer the oblast to Armenian jurisdiction. GULIZADE said that LEBED's trip will seriously undermine the efforts being taken by Russia, the United States and France, which are the co-chairs of the Minsk Group of the Organization for Security and Cooperation in Europe (OSCE), to ensure a peaceful settlement of the conflict. LEBED is running for the Krasnoyarsk governor's post, elections will take place on April 26th.

Turkmen Signs Oil Accords

· Turkmen President Saparmurat NIYAZOV on Wednesday signed two agreement with companies from Canada, Israel, and Switzerland to modernize the Turkmenbashi oil refinery. A consortium of Canadian and Israeli companies plan to install three new processing plants at the oil refinery. The Swiss energy group Asea Brown Boveri will install an additional power generating unit to boost the refinery's capacity, reported the Associated Press.

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

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