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

Tuesday, February 3, 1998

Court Over-turns Residency Registration

· The Constitutional Court on Monday over-turned the Soviet era Municipal Registration or propiska, which required Russian citizens to obtain residential permits in order to live in a city. The Constitutional Court ruled that the government did not have the authority to either grant or deny people permission to live in a particular city. The judges ruled that although citizens must register their residences with local authorities, they retain the right to choose where they want to live. Now, the registration process is a matter of notifying authorities, rather than seeking permission for temporary or permanent residence in a given location. The only valid restrictions are contained in a federal law on citizens' rights to travel and choose their place of residence. Authorities may refuse to register an apartment in an area that is restricted because of an ecological disaster or an epidemic, reported RFE/RL Newsline.

Rus-Lebanese Foreign Ministers Meet

· Russian Foreign Minister Yevgeny PRIMAKOV and his Lebanese counterpart Fares BOUEIZ met in Moscow Monday to discuss situation around Iraq among other issues. This was the first visit paid by the Lebanese foreign minister to Moscow. The two sides are expected to sign Russian-Lebanese documents during the visit. BOUEIZ will be accompanied by a group of Lebanese business people who intend to meet representatives of Russian financial and economic structures to discuss issues of mutual concern. In April 1997, Lebanese Prime Minister Rafik

Russian Federation

Politics

New Tax Code Submitted to Duma

· Deputy Finance Minister Mikhail MOTORIN announced that the Russian government has submitted to the Russian State Duma a new version of the Tax Code. The new version provides for the lowering of the profit tax rate from 35 to 30 percent. The Tax Code's plans are in accords with the Civil Code and other laws. It defines the term "tax legislation" and brings the total number of taxes down from 50 to 28. A number of amendments envisage stage-by-stage elimination of some taxes, including a tax on highway users to be renamed road tax. The government plans to lower the rate of this tax to 1.5 percent in 1999 and to 0.75 percent in 2000, Itar-Tass reported. The government has rejected the single "social tax," idea suggesting all deductions to social non-budgetary funds be introduced in the Tax Code as separate taxes whose rates are to be subsequently subject to gradual reduction, MOTORIN said. The value-added tax is to remain at the rate of 20 percent, with a privileged rate of 10 percent for certain categories of tax-payers. The government suggested a new tax on gambling, with the rate of at least one million rubles, to replace the profit tax. Restructuring and enforcing the Tax Code is one of the government's top 12 priorities as set out by President Boris YELTSIN. The new Tax Code is expected to come into force on January 1, 1999.

This January, Russia's State Tax Service has almost met its target for tax collection with revenues reaching 9.5 billion rubles. Finance Minister Mikhail ZADORNOV said that the Tax Service planned to collect 10 billion rubles. The minister noted that customs duties collection almost doubled from the same period last year reaching 4.7 billion rubles (2.4 trillion January 1997).

Today's News Highlights

Russia

LUKoil Buys Romanian Oil Stake

European Republics

US Visa Fees Increase For Lith.

Iran-Belarus Relations

South Caucasus & Central Asia

Armenian President Resigns

US Aids Georgia's Border Force

Georgia-Azeri Favor Bypass

WB Issues Tajik $10M Loan

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February 3, 1998

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HARIR met with President Boris YELTSIN and signed several economic agreements, including the creation of an intergovernmental commission on trade and economic cooperation, and cooperation in the field of culture, science and education. The Lebanese Foreign Minister is also due to meet with Patriarch of Moscow and All Russia Alexy II.

Duma to Consider Budget Feb. 4

· Russia's State Duma today will consider the draft 1998 budget in the third reading on February 4. If it passes the budget in the third reading on Wednesday, the fourth and final reading might take place in mid February. The liberal Yabloko faction reiterated that it would vote against the 1988 draft budget, claiming it had become even more unrealistic prior to its third reading. Chairwoman of the parliament's budget subcommittee Oksana DMITRIYEVA said that the budget's, "60 billion of denominated rubles in additional expenses have not been backed by real money." She explained that this is why the 1998 budget provides for two major cuts in expenditure totaling 60 billion rubles.

Economy

Ruble = 6,029/$1.00 (NY rate)

Ruble = 6,031/$1.00 (CB rate)

Ruble = 6,005|6,057/$1.00 (buy|sell rates)

State's Security Markets "Absolutely Calm"

· Russia's Finance Minister Mikhail ZADORNOV on Monday reported that the country's state securities market is, "absolutely calm." According to the Minister, foreign investors have not withdrawn their money from the Russian market, moreover, they have even increased their investments into Russian state securities. Meanwhile, those Russian banks which gave way to panic have turned out to be at a loss, he said. From the point of view of the macro-economic situation, there were no grounds for panic, "it was a purely speculative gambling," ZADORNOV added.

IMF Mission Reviews Russian Economy

· The International Monetary Fund (IMF) has sent a mission to Moscow to review its progress in economic reforms. IMF experts will meet with officials of the Russian government and the Central Bank. Meeting will focus on the Russian economy, particularly the country's monetary, credit and tax policies in the period from the fourth quarter of 1997 through

the start of 1998. Following a report issued by the Mission, the IMF will decide on the issue of its next Extended Finance Facility installment. The mission and the Russian officials will develop a program for joint actions of the IMF, the government and the Central Bank for this year. During the previous visit, the Fund's mission raised hope that given full and persistent implementation of the agreed measures in the tax, budget, cash and credit policies, the outlook of Russia's economy for this year will be positive.

Business

Lukoil Buys Stake in Romanian Oil Refinery

· Russia's oil giant LUKoil today acquired a majority stake in Romanian oil refinery Petrotel, which was worth $300 million including investment projects at the plant. LUKoil President Vagit ALEKPEROV said, "The deal will allow the company better access to European and Black Sea markets." This represents LUKoil's first acquisition outside of Russia. The Petrotel refinery processes 1 million tons of crude annually. The local Rafo SA refinery said it will negotiate a contract with LUKoil this month to import an average of 150,000 tons of oil per month for processing. Romania, whose oil output is 6.5 million tons annually, has the capacity to refine 34 million tons per year. Romanian consumption of oil is 11 million tons.

Former Foreign Minister on US ICN's Board

· Former Russian Foreign Minister Andrei KOZYREV has been placed on the board of directors of the US company ICN Pharmaceuticals, vice president and managing director of ICN's Eastern European division Theodore OLIC announced Friday. Since he is a deputy of the Russian State Duma, KOZYREV will not be paid. KOZYREV will be paid travel and hotel accommodation costs, adding that this will not be remunerative compensation. The board of directors of ICN Pharmaceuticals had unanimously elected KOZYREV a board member, a sign of the company's plan to consolidate its foothold in the Russian market. "We are glad to welcome Mr. KOZYREV to the ICN Board of Directors. His astute mind and profound knowledge of Russia and Eastern Europe will be of great benefit to the ICN at a time when we strive to expand our operations in that part of the world. Besides, he is certain to make a contribution to the expansion of global perspectives of our business," said ICN CEO Milan PANIC former Prime Minister of

When you need to know it as it happens

Politics-Economics-Business

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Yugoslavia. According to ICN's press release, KOZYREV's responsibility will be to attend quarterly meetings of ICN board of directors. ICN Pharmaceuticals holds a leading position in Russian's pharmaceutical industry, employing 7,000 people and markets 200 medicinal preparations. ICN earned $145 million in sales during 1997.

Security Technology Exhibition in Moscow

· An international Security Technology Exhibition for 1998 opened in Moscow today. The exhibition hosts 163 companies from eight countries and represents major producers of security means and security guard agencies. Thematic sections of the exhibition will deal with crime-detection technology, fire fighting gear, the protection of information, bullet-proof protection and special-purpose fatigue.

nounced his resignation. Armenia's Minister for Territorial Administration Galust GAMAZYAN, Central bank governor Bagrat ASATRYAN and director of the executive board of the National Fund Manushak PETROSYAN sought the President's resignation. He said, "I have faced demands to resign. Considering that in this situation exercising the President's constitutional power may cause a serious destabilization of the situation, I accept this demand and announce my resignation." Following the approval of the President's resignation by a majority of the parliament, new elections will be held in 40 days. In the interim the parliamentary speaker will act as President. The President and the Prime Minister's disagreement over the policy on the solution to the Nagorno-Karabakh conflict caused a severe power struggle which split TER-PETROSYAN's ruling block. As Intercon reported Monday Armenia's Foreign Minister Alexander ARZUMAYAN and Yeveran Mayor and chair of the Pan-National Movement Vano SIRADEGYAN resigned. Head of the Armenian political scientists' union Avtur BAGDASARYAN said, "The political situation is complicated and tense." Clearly the situation regarding the solution of Nagorno-Karabakh conflict and domestic power will remain uncertain until after a new President has been elected. TER-PETROSYAN was the hope for a peaceful settlement. With his resignation, a solution to the Nagorno-Karabakh conflict appears to be beyond reach and the spector of internal and external conflict appears to have increased. Sources in the region report a high degree of concern over the developments. Prime Minister Robert KOCHARYAN has reportedly threatened to blow up pipelines when he was "President" of Nagorno-Karabakh. One diplomat reflected 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."

Bulgaria to Join Port Extension in Georgia

· Bulgarian Deputy Prime Minister Alexander BOZHKOV and Georgian Prime Minister Niko LEKISHVILI on Monday discussed Georgia's invitation to Bulgaria to take part in extending Georgia's Port Poti and in transporting goods and raw materials from Caucasia and Central Asia to Europe, while they were in Davos, Switzerland attending the World Economic Forum. The Georgian side proposed concerted actions for the intensive use of transport

European Republics

US Visa Fees Increase for Lithuanians

· The cost of a simple US visa has increased from $20 to $45, and the cost of an immigration visa has raised from $200 to $325 for Lithuanian citizens, according to a report from the American embassy. The cost of notary services rendered by the US Consular department in Vilnius has also increased. Until this point, the consular department approved 70 percent of visa applications, but the consular workers are alarmed by the fact that one third of Lithuanian citizens, who were given an entry visa, did not leave the US on time and remained overseas.

Iran-Belarus Relations

· A meeting of Iranian-Belarus Commission on Economic Cooperation opened in Tehran Monday to discuss the prospects for broadening of commercial, economic and scientific ties between the two nations. The talks will focus on cooperation in machine-building and instrument-making. After the talks of the foreign ministers in October last year, it was announced that a Belarus embassy would soon be opened in the Iranian capital. Belarus President Alexander LUKASHENKO is expected for an official visit to Iran on March 6th.

South Caucasus & Central Asia

Armenian President Resigns Under Pressure

· Under pressure, Armenian President Levon TER-PETROSYAN on national television today an

Politics-Economics-Business

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When you need to know it as it happens

Tuesday

February 3, 1998

Intercon's Daily

corridor No. 8, which passes across the Black Sea and connects Poti with the Bulgarian port city of Bourgas. Bilateral relations have increase since the signing of the Treaty of Friendship and Cooperation July 1996 and its ratification in November 1997.

US Assists Georgia With Border Control Force

· In an agreement signed by Georgian border guard chief Valery CHKHEIDZE and head of US delegation of military experts Sherry Holiday, the United States will assist Georgia in creating a system of border guard control, including nonproliferation of mass destruction weapons. Under the agreement, the US Defense Ministry will render Georgia assistance in training personnel and creating a system of control on the Georgian border. The amount of aid will be $7 million, according to CHKHEIDZE. The US military experts met with senior officials of the Georgian Border Guard Department, Customs Department, and Defense Ministry. They also inspected border check points on the Georgian-Azerbaijan and Georgian-Armenian borders.

Georgian-Azeri Favor Bypassing Russia

· Azeri President Geidar ALIYEV and Georgian President Eduard SHEVARDNADZE in interviews with Newsweek Magazine expressed that they favor the main pipeline route for Caspian oil to bypass Russia. ALIYEV said that oil pipelines are one factor, "which help strengthen Azerbaijan." He stressed that, "The route Baku-Ceyhan will be very important not only for the export of Azeri oil, but also for the export of Kazakh and Turkmen oil." ALIYEV admitted that the bypass project is not favorable for Russia. Georgia's Eduard SHEVARDNADZE said, "This transport corridor between the East and the West means much for the country [Georgia], and first of all closer ties with other countries." He said Georgia's status will grow while profits increase as a result. According to him, Central Asian, European and Caucasian states, "are vitally interested," in such a bridge between Europe and Asia. He emphasized at the same time that, "this will not mean that Russia will loose its functions of a transit country." In response,

Russian Fuel and Energy Minister Sergei KIRIYENKO stated that the most economical route for Azerbaijan's oil for overseas exports is through Russia. He said, "politics prevails over the economy," in the statements of SHEVARDNADZE and ALIYEV. However, the many regional leaders have been proposing that economics will take priority over politics when it comes to pipeline decisions. The final decision on the shipment route will be made by the international consortium of companies that develop Azerbaijan's oil fields.

Tajikistan Receives $10M WB Loan

· The World Bank on Thursday released the second post-conflict credit of $10 million to restore the Karategin and Tavildara areas of the Tajik Pamirs, where the confrontation between the government troops and the opposition took place. $600,000 of the credit will be used to buy seeds and fertilizers for farmers; $5,100,000 to repair and restore 15 bridges and finalize the construction of a four kilometer section of the Dushanbe-Khorog highway; 2.3 millions to restore schools, hospitals and other social facilities of the region; and 1.9 millions for restoration works in agriculture and the energy industry. The credit will be used in March 1988-Spring 2000.

CIS Approve Draft Plans for Military Co-op

· Russian Defense Minister Igor SERGEYEV said Friday that the Commonwealth of Independent States (CIS) will construct a collective defense space for member states. Defense ministers from CIS countries approved a draft plan for military cooperation through the year 2001. SERGEYEV said forming, "a single defense space in the framework of the Russian-Belarus Union" will be discussed further. He noted that ties with Georgia, Kazakhstan, Kyrgyzstan and other CIS countries, "in the military sphere have produced a favorable impact." The meeting approved draft 1998 budgets for development of a joint system for air defense and other joint programs; ministers also expressed interest in developing air defense and improving regulations for the coordinating committee for air defense.

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

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