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

Monday, February 23, 1998

Russian Federation

Politics

Russia Sharing Nuclear Tech. With Iran?

· The Washington Times, citing high level sensitive intelligence sources, today reported that Russia's Federal Security Service (FSB) is working with the Iranian intelligence service to coordinate exchanges under a joint Russian-Iranian missile research center. The Baltic State Technical University in St. Petersburg received a payment from the head of Iran's Sanam College for the Persepolic joint missile education center as part of a 1996 agreement. Officials estimate that Iran has invested $20 million in Russian Missile technology. US intelligence officers revealed that in the coming weeks three Russian missile experts will teaching Tehran subjects ranging from guidance systems to firing circuitry and the pyrotechnics of explosive systems. Sanam, also called Sanam Industries Group, Department 140, and Missiles Industries Group, is associated with Iran's Defense Industries Organization, which is the government weapons procurement agency. The Russian Foreign Ministry notified Iran's Moscow ambassador that the Sanam Industries Group, a missile developer, must curtail all its activities.

Last month Prime Minister Viktor CHERNOMYRDIN, in an attempt to rebut rumors of sharing missile technology with Iran, issued a decree to tighten controls over the export of technology with dual military and civilian applications. This decree was welcomed by the CLINTON administration. However, the new link between the FSB and Iran's Ministry of Intelligence and Security, raises doubts about Moscow's true intentions. This information allegedly confirms that Russia has been misleading the US regarding its military cooperation with Iran which appear to be violating the Military Technology Control Regime (MTCR) Treaty. The Washington

Times cites an unnamed US official criticizing the US foreign policy with Russia. "This is the price America is paying for the CLINTON administration's failure to be tough with Russia and other proligerators."

Meanwhile, Iranian Foreign Minister Kamal KHARRAZI will arrive in Moscow Tuesday for meetings with Russian Foreign Minister Yevgeny PRIMAKOV and CHERNOMYRDIN. Diplomatic sources say the talks will focus on the situation in Iraq. Other sources wonder whether missile technology transfer arrangements will be discussed. KHARRAZI told AL HAYAT Saturday that Iranian-Russian cooperation is in the interests of both countries and is not directed against the US.

Caspian Oil Blockage Continues

· Since February 8th, Russian officials have been blocking Caspian Sea oil exports from a US backed consortium Azerbaijan International Operating Co. (AIOC) claiming the group lacks proper custom documentation. Industry analysts are perplexed by this move because Russia for almost four years has been lobbying the consortium to use its pipelines instead of alternative routes through Georgia and Turkey. Confusion surrounds whether oil has reached the Russian border. One consortium official indicated the group had avoided confrontation at the border by deciding to fill its storage tanks in Azerbaijan instead. The delivery agreement is with Russian pipeline operator Transneft, a state-owned monopoly. Because of this suspicions have been raised

Today's News Highlights

Russia

Obuchi Meets Top Officials

LUKoil Bids For Ukraine Oil

European Republics

Lukanomics Policies

Ukraine to Sell-Off Oil Refineries

Euro-Baltic Cooperation Formed

South Caucasus & Central Asia

Kidnappers Let One Hostage Go

Iran Denies Caspian Agreement

Kazakh Finance Min. Reshuffled

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as to why the Russians are blocking transit. Three possibilities have emerged, The Journal of Commerce reported. Russia may be trying to discourage foreign investment in the region by putting obstacles in the path of progress. Moscow may be returning to a policy which failed in 1994, to reverse a slump in oil prices and Russian revenue by cutting its own exports to reduce world supplies. Or Russia may be dealing with problems in negotiations with Chechnya, which controls 95 miles of the pipeline. Time is running out on an extension Chechnya granted to cover a period from January 1 to the end of this month. Comment: What ever the real reason is for the halting of oil exports, the consortium's patience is wearing thin and southern alternative routes may become more appealing as the delays ensue.

Obuchi Meets with Nemtsov, Primakov, Yeltsin

· Russian First Deputy Prime Minister Boris NEMTSOV and Japanese Foreign Minister Keidzo OBUCHI and signed a fishing agreement in Moscow on Saturday. Under that agreement, Japanese fishermen have the right to fish about 2,500 tons of fish and octopus annually in the waters around the Kuril Islands. In return Japan will pay $400,000 yearly and donate funds to develop Russia fisheries on islands in the western Pacific. This decision follows 13 rounds of discussions between Russian and Japanese representatives over nearly three years. OBUCHI also met with Russian Foreign Minister Yevgeny PRIMAKOV to discuss a wide range of issues, including the crisis in Iraq. The two sides focused on the implementation of the YELTSIN-HASHIMOTO plan, the conclusion of the Russian-Japanese Peace Treaty and the forthcoming visit of Russian President Boris YELTSIN to Japan. The two sides shared view that the YELTSIN-HASHIMOTO Plan remarkably promoted the economic cooperation between the two countries, and noted the necessary to increase their military cooperation and contacts. OBUCHI agreed to speed up the process for Russian businessmen to obtain a Japanese visa and promised to help Russia gain entry into the Asian Pacific Economic Cooperation group and the World Trade Organization. The two also agreed that a bilateral peace treaty formally ending World War II would be signed by the year 2000 and that their deputy foreign ministers will meet in Tokyo next month to begin discussions on the treaty. PRIMAKOV handed over documents on 13

Japanese prisoners-of-war who died after World War II in Soviet camps. The two minister also prepared for the informal April 11-13 meeting of Russian President Boris YELTSIN and Japanese Prime Minister Ryutaro HASHIMOTO. OBUCHI told YELTSIN that the Export-Import Bank of Japan will provide about $1.5 billion in untied loans to Russia over the next two years.

Economy

Ruble = 6,064/$1.00 (CB rate)

Ruble = 6,038|6,090/$1.00 (buy|sell rates)

Russia-Cuba Commission Discuss Co-op.

· An intergovernmental Rus-Cuban commission for trade and economics, and scientific and technological cooperation opened its session in Havana on Thursday. The Russian Minister for Civil Defense and Emergency Situations Sergei SHOIGU, co-chairman of the commission, and Russian businessmen interested in joint ventures met Cuban Minister of Foreign Trade Ricardo CABRISAS, Minister of Finance and Prices Manuel MILLARES, and Minister of Foreign Investments and Economic Cooperation Ibrahim FERRADAS. SHOIGU feels the number private Russian companies involved in long-term bilateral cooperation projects is too small. The commission discussed the construction of a nuclear power plant in Juragua. The first phase of the once "frozen" plant will be soon put into operation. Cuban nickel industry is of interest for the Russian Unexim Bank. A major Russian juice producer, the Wimm-Bill-Dann Company plans to open its office on the island. SHOIGU after meeting with Minister of Sugar Industry Ulises ROZALEZ said, "We have advanced some ideas on joint projects in sugar industry. The Cuban sugar branch needs agricultural machinery, and transport. The relevant Russian companies could prove the participants in the joint business."

Business

Lukoil Bids for Ukraine Oil Stake

· Russia's oil company LUKoil has bid for a 40 percent stake in Ukraine's oil refinery Lisichansknefteorgsintez (LINOS) to be auctioned in March. LUKoil remains the main contender. Ukrainian Property Fund officials said on Saturday that results from a previous auction to sell 45 percent of shares in LINOS have been declared invalid. Other

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companies and banks interested in the auction are from Austria, Britain, Switzerland and the United Arab Emirates.

TUSRIF Invests $2.5M SEGOL RadioPAGE Inc.

· The US Russia Investment Fund (TUSRIF) plans to invest $2.5 million into SEGOL RadioPAGE Inc. SEGOL RadioPAGE's board of directors will appropriate the funds to be used to expand the operations under EnergoNET in Russia. EnergoNET, the holding company responsible for SEGOL RadioPAGE shareholding in Russia, will be the common name under which paging and other wireless services will be developed. TUSRIF is a private investment firms capitalized with $440 million in grant funding from the US government to assist the development of a Russian market economy. TUSRIF has invested in over 100 businesses, employing over 18,000 people in 30 different Russian cities.

Belarus President to Visit Iran

· Belarus President Alexander LUKASHENKO will visit Iran in early March to sign agreements on agriculture and education. Belarus Deputy Foreign Minister Nina MAZAI said no defense agreements were planned and denied a Washington Times report that Minsk is prepared to sell tank engines and spare parts to Iran. This was confirmed by First Deputy Defense Minister Mikhail OZLOV who added that, "Close relations do not exist between us yet, but we will meet at the attaché level and want to know what problems they may be having. We do not wish to hang an iron curtain before Iran."

Ukraine To Begin Oil Refinery Sell-offs

· Deputy of the Ukrainian Property Fund Alexander BONDAR announced that it will privatize all six Ukrainian oil refineries, Kremenchuk, Lisichansky, Nadvirnyansky, Drohobych, Odessa, and Kherson, by the end of 1998. Sales for March include a 40 percent stake in the Lisichansky Naftopererobny Zavod (LINOS) and stakes of 30 and 31 percent in the Kherson Oil Refinery. The rest of the refineries will go on sale as they are ready for privatization. BONDAR stated that the Fund is required to raise one billion gryvnias ($508.6 million) in budget revenues in 1998. All six are capable of refining a total of 60 million tons of crude oil per year.

Latvenergo Privatization Suspended?

· The Latvian parliamentary committee investigating the loss of 3 million lats ($6 million) at the state energy utility Latvenergo will submit a draft resolution calling for the privatization of the company to be suspended. The committee concluded that "political pressure" on the board of the Latvian Privatization Agency facilitated the illegal deal between Banka Baltija and an off-shore Liechtenstein Company. Andrejs PANTELEJEVS head of the committee said, "The decision was made hastily and in violation of record-keeping violations at the agency." At the time of the deal, the board was subordinated to former Prime Minister Andris SKELE. Latvian Premier Guntars KRASTS opposes the suspension. KRASTS believes Latvenergo's privatization should continue, "on all fronts," noting that otherwise, the country's general economic improvement would grind to a halt.

Euro-Baltic Cooperation Established

· Representatives from Denmark, Latvia, Lithuania,

European Republics

Lukanomics Days are Numbered

· Economic experts say that "Lukanomics'" days are numbered. "Lukanomics," named after Belarus President Alexander LUKASHENKO, is a hybrid of old-style central planning and a few modern mechanisms, which critics say could result in the same chronic shortages and hidden inflation that destroyed the Soviet Union, The Wall Street Journal reported. Belarus boasts 10 percent economic growth far ahead of Russia' anemic 0.4 percent rise last year and Ukraine's 3 percent decline in gross domestic product. The capital city's streets are clean, stores are full, and salaries, on the average $67 a month, are paid on time. Since he came to power, LUKASHENKO has aggressively brought the levers of economic control under his personal grasp. His administration took back controlling stakes in the country's five largest banks, shifted power from weak institutions to the President, sets the foreign exchange rate and regulates all trade policies. Although the west has criticized his closure of the parliament and cut down on private businesses, LUKASHENKO's approval rating is 50 percent. But economic experts predict that cheap credit and trade privileges with Russia, will give local companies no incentive to restructure or boost their competitiveness on global markets. They add that lack of reforms, high inflation, and rigged exchanged rates are signs of trouble.

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Russia, Sweden and Poland agreed on Sunday to establish a Euro-Baltic cooperation area in the famous northern ancient city of Marbork. It is expected to be the largest cooperative area in Europe. Under the agreement, signatories will cooperate in a wide-ranging area of industry, agriculture, forestry, transportation, traffic, environmental protection, crimes fighting, infrastructure and land planning.

South Caucasus & Central Asia

Georgian Kidnappers Release One Hostage

· Following the withdrawal of armed vehicles from around the house where four UN observers and a Georgian family are being held hostage, the kidnappers released Capt. Julio NAVAS of Uruguay as a "gesture of good will." The kidnapers are supporters of the ousted president Zviad GAMSAKHURDIA. Gang leader Gocha ESEBUA on national TV said that he was satisfied with the course of talks and hoped for a peaceful solution to the crisis. The gang's demands include the release of all those detained on suspicion of involvement in a recent assassination attempt on President Eduard SHEVARDNADZE, a pullout of Russian troops from the former Soviet republic, and talks between representatives of the pro-GAMSAKHURDIA movement and President SHEVARDNADZE. The President agreed to this last demand on Sunday. "We are ready for dialogue, but only on the condition that the hostages are freed," the President said. The kidnappers are demanding that a Nemo BUCHULADZE, former deputy chairman of Supreme Soviet of Georgia believed to be living in Russia and aligned with GAMSAKHURDIA supports, be brought in to negotiate with SHEVARDNADZE directly.

Saturday, following appeals by Czech President Vaclav HAVEL and Swedish Prime Minister Goeran PERSSON, SHEVARDNADZE ruled out the use of force to secure the hostages' release. He agreed that UN representatives should join the Georgian security officials engaged in negotiating the hostages' release. Georgian State Security Minister

Dzhemal GAKHOKIDZE is confident that the crisis can be resolved through peaceful means. SHEVARDNADZE said, "It cannot go no like this for a long time. The idea of terrorist forcing Georgia to change its chosen course has no chance of coming true." Intercon sources in Georgia report that the US State Department has decided it will pull out its support to UNOMIG. This has sent shock waves through the Georgian government, when it is actively pursuing the investigation into SHEVARDNADZE's assassination attempt and promoting the Eur-Asian corridor and its pipelines. Such a withdrawal would send an immediate message to the world community that the UN should withdrawal from Georgia and bow to the pressures of the terrorists. This decision comes at a critical time when Georgia is attempting to obtain more UN and US involvement in finding a solution to the Abkhazia conflict.

Iran Denies Endorsing Caspian Agreement

· The Iranian Embassy in Moscow has denied Turkmen Foreign Minister Boris SHIKHMURADOV's claim that President Mohammed KHATAMI wrote to his Turkmen counterpart, Saparmurat NIYAZOV, earlier this month approving the Turkmen-Azerbaijan agreement on delineating those countries' sectors of the Caspian. In an official press release, the embassy affirmed that Tehran continues to insist that all matters related to the Caspian should be resolved jointly by the littoral states, RFE\RL Newsline reported.

Kazakh President Reshuffles Finance Ministry

· President Nursultan NAZARBAYEV has signed a decree dismissing Aleksandr PAVLOV as finance minister and replacing him with his deputy, Sauat MYNBAYEV, Itar-Tass reported. National Bank Chairman Uraz JANDOSOV has been appointed first deputy prime minister and chairman of the State Investment Committee. He is replaced by his deputy, Kadyrjon DAMITOV, who is also adviser to the prime minister. Akhmetzhan YESIMOV, until now first deputy prime minister, is to take over as head of the presidential administration.

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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