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 9, 1998

Russian Federation

Politics

Yeltsin Visits Rome To Boost Investment

· Russian President Boris YELTSIN left Moscow today for a visit to Italy which will include talks with Italian President Oscar Luigi SCALFARO, Italian Prime Minister Romano PRODI, Pope John Paul II, the signing of a number of important economic agreements totally worth approximately $1 billion, and a meeting of Russian and Italian entrepreneurs. Close mutual understanding and interaction have been reached between Moscow and Rome in political terms. A bilateral, "plan of activities" which is to be signed as the main result of the Russian president's visit is expected to sum up all projects of Rus-Italian cooperation and is the first Russia has signed with a western nation. Russian and Italian Foreign Ministers, Yevgeny PRIMAKOV and Lamberto DINI, will hold talks Tuesday within the framework of the Presidential visit.

As for the economy, Italy is Russia's third most important economic partner after the United States and Germany. Last year, trade turnover between the two countries was estimated at $5.9 billion. Russian and Italian companies are working at a number of investment projects the total cost of which might reach up to $8 billion. The projects include planned deliveries of equipment to update the Russia-Italy gas pipeline and laying a new pipeline parallel to the existing one, equipping Russia gas pipelines with state-of-the-art telecommunications systems, as well as providing some Russian airports with devices for air traffic control. An agreement between the FIAT and GAZ companies to establish an enterprise to manufacture annually 150,000 FIAT cars in Nizhni Novgorod is in the preliminary list of documents prepared for signing. The volume of the deal is $850 million. According to the Italian Foreign Trade Insti

tute, the sides expect to sign a $250 million contract for the production of 1,000 advanced city buses in St. Petersburg by the joint Russian-Italian venture Severny Avtobus over the next four years. Another major agreement presupposes participation of the Teknimont firm in the construction of plants to produce polypropylene in various regions of Russia. About 90 small and medium-sized Italian agro-industrial enterprises are to begin to operate in the Karelian Republic. This project is to be implemented under the auspices of the large Turin-based FATA company, which specializes in the processing and production of food. The value of the deal will be about $80 million. The Merloni firm is also to invest in a plant outside of Moscow to produce its electrical appliances in a deal worth $100 million.

YELTSIN expressed hope that as a result of his visit to Italy, "its leadership will understand the need for granting Russia equal conditions with other countries" and will be more active in the international arena, demanding a repeal of discriminatory measures against Russian exports. "We are convinced of the fallibility of the still used dumping procedures, and will fight "the double standards," YELTSIN emphasized.

Duma Passes Amendment Procedure

· The Russian State Duma on Friday approved a law outlining the procedure through which constitutional amendments may be adopted. Amendments must be approved by two-thirds of State Duma

Today's News Highlights

Russia

Russian-Chechen Relations

Sidanko Investigated

Merloni Invests in Russian Plant

European Republics

Ukraine-Belarus Results

Belarus Businesses End Strike

South Caucasus & Central Asia

Attempt on Shevardnadze's Life

Armenian Presidential Candidate

Kazakhstan Banks Open Abroad

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February 9, 1998

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deputies, three-quarters of Federation Council deputies, and legislatures in two-thirds of the Russian regions, RFE/RL Newsline reported. An earlier version of the law, included a provision on "silent assent," whereby regional legislatures would be considered to have approved proposed constitutional amendments if they did not vote on them within six months. The version approved Friday requires regional legislatures to submit written confirmation that they have approved proposed amendments. This revision will make it more difficult to change the constitution, since regional legislatures may block amendments simply by refusing to vote on them.

Russian-Chechen Relations

· In a television appearance on Friday, Chechen President Aslan MASKHADOV said he plans to recall Chechen representatives from Moscow and ban Chechen travel to Russia. He also threatened to revise a Chechen-Russian accord on oil transit through its territory because Moscow has not lived up to its promises to help rebuild Chechnya. MASKHADOV also said he ordered air flights from Grozny to Moscow to stop because, "the Russian side is delaying the decision-making on the status [international] of the Grozny airport." These sharp comments come as a result of stalled negotiations with Russia, broken promises, and pressure from radicals at home. On Saturday Foreign Minister Movladi UDUGOV said these statements were only a warning to Russia. The non-payment of Chechen pensions by the Russian government fueled MASKHADOV. The problem of paying pensions and allowances to Chechen citizens was discussed at a meeting with the Chechen vice-premiers Monday. Vice-Premier Khamzat SHIKHDAYEV said that the problem was partially settled and that Chechen pensioners would soon begin to get their money. SHIKHDAYEV, who is in charge of social problems in the Chechen government, met Russian Vice-Premier Oleg SYSUYEV. The sides agreed during that meeting to resume the payment of pensions and allowances to Chechen citizens as of February 1998. He said that the owed pensions for November-December 1997 and for January 1998 would be paid by the Pensions Fund of Russia in the course of the current year. MASKHADOV stated during the meeting that Rus-Chechen talks and the meetings at ministerial and departmental level must henceforth be in agreement with the State Negotiations Com

mission of Chechnya headed by UDUGOV.

MASKHADOV called for an international commission to chastise Russia for its non-compliance with accords and for trials of Russian officials who started the war in Chechnya. UDUGOV, who leads the Chechen delegation to Moscow-Grozny settlement negotiations said, "participants of the negotiation commission on both the Chechen and Russian sides will do the best to rectify the situation and put a full stop in the relationship between Russia and Chechnya, thereby making the relations between Grozny and Moscow definite." Former Chechen field commander Salman RADUEV criticized MASKHADOV for failing to press Moscow still harder.

Economy

Ruble = 6,038/$1.00 (NY rate)

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

Ruble = 6,015|6,067/$1.00 (buy|sell rates)

39 Billion New Rubles Issued

· The Central Bank of Russia's (CBR) chairman Sergei ALEXASHENKO told a news conference today that the Central Bank has issued over 39 billion new rubles ($6.5 billion) and withdrawn 50 trillion old rubles ($8.3 billion). ALEXASHENKO described the redenomination process as a major positive event. Russians have not panicked over the redenomination, and there had been no problems with it so far. As of February 1, 25.3 percent of the Russian banknotes in circulation had been new ones.

Sidanko Under Investigation

· Former finance minister and representative of the Russian State Duma Boris FYODOROV has called for a federal investigation into a securities issue by oil company Sidanko. FYODOROV said minority shareholders were diluted in a bond issue by the oil company registered last December. "As a result of dilution, private and corporate minority shareholders...currently face the fact that their shares of Sidanko will fall 2.7 times," he said. Sidanko representative Olga SERGEYEVA said, "There is no violation of minority shareholder's rights. These actions are aimed at the long-term consolidation of the company and its greater manageability, which in turn will make Sidanko more attractive to investors." Minority shareholders are already putting pressure on foreign investors, such as British Petroleum, to

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intervene in the dispute. BP purchased 10 percent stake in Sidanko for $571 Million as part of a strategy to gain a foothold in Russia's oil industry, reported The Financial Times. Minority investors say they were barred from participating in the bond issue, which will increase the number of Sidanko's outstanding shares by 173 percent to 635 million. Minority investors are pressuring Sidanko to allow them to participate in the bond issue on equal terms or buy out their shareholdings at a fair market price. Russia's Federal Securities Commission will investigate shareholder complaints as well as other violations of minority shareholder rights at Yukos. Sidanko a vertically integrated oil company controlled by the Interros-Unexim financial industrial group is consolidating shares in Chernogorneft and Kondpetroleum production units.

Business

Joint Stock Company Leaders to Meet

· A two-day nationwide conference of Russian joint stock company heads and state commissioners in joint stock companies will open today to discuss the development of joint stock companies in Russia. The conference participants will the role of joint stock companies in the Russian economy and the legal provision of their work. Special attention will be given to the legal status of state commissioners in joint stock companies and the trust control over federal shares. Financial and economic indices of privatized and state enterprises will be compared on the conference results. About 700 representatives of joint stock companies, heads of federal ministries and departments are expected to take part in the conference, according to the Russian Ministry for State Property.

Merloni Invests , 40M in Russian Plant

· As part of its strategy to boost sales in eastern Europe, Merloni Elettrodomestici of Italy will invest up to , 40 million in a cooker and washer machine plant near Moscow. The announcement coincides with Russian President Boris YELTSIN's visit to Italy promoting foreign investment. Merloni's chef executive officer Francesco CAIO hopes that Russia and eastern Europe will account for 30 to 35 percent of Merloni's annual sales by 2000. "In following this plan, we have realized we must manufacture locally rather than export [from western Europe]," he told The Financial Times. Merloni claims to have the

biggest share of the market for imported white goods in Russia. The eastern European market is growing at about 30 percent a year compared to 3 to 4 percent a year growth for sales in western Europe. The Moscow plant will start up as an assembly and service site for the cookers. In 2001, Merloni intends to expand the plant to full-scale washing machine production, employing 500 people.

European Republics

Ukraine-Belarus Visit Yield Positive Results

· A Ukrainian governmental delegation, led by Ukrainian Prime Minister Valery PUSTOVOITENKO ended a two-day official visit to Belarus on Friday. PUSTOVOITENKO and LUKASHENKO signed a number of bilateral agreements during the visit. "We held talks on revoking the value-added tax as regards trade between Russia and Belarus. The talks resulted in that the Belarus side sent a note on Friday confirming the introduction of free trade between Russia and Ukraine. This allows the two countries to soon revoke the value-added tax in what concerns the trade relations between Ukraine and

Belarus," PUSTOVOITENKO concluded.

Belarus Businesses End Strike/ Tax Suspended

· In Belarus, thousands of businesses called off a strike against the government following President Alexander LUKASHENKO's suspension of a punitive tax, The Journal of Commerce reported. The government will decide in the coming week if the final decision on the tax suspension. The tax was levied against annual revenue whether businesses earned a profit or not. Since February 1, the strikers managed to bring trade in non-food items to a halt. 100,000 private businesses in Belarus were involved in the strike, protesting a long series of repressive episodes since LUKASHENKO took office in July, 1994. The President sought a vengeful crack down against private commercial businesses which he blamed for the assassination of a close political ally. The tax appears to have been more than a hostility against businesses. It may have been apart of a broader hostility toward western economics, democratic politics and trade. Many western and US businesses have found Belarus a strategically attractive market, as it serves as a gateway to Russia. Belarus's gross domestic product increased by 10 percent, with a 17.8 percent gain in industrial

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output, and inflation rising to 64 percent.

South Caucasus & Central Asia

Attempted Assasination on Shevardnadze

· Georgian President Eduard SHEVARDNAZDE survived a military style assasination attempt today as three rockets propelled grenade [RPG] attacked the President's armored car. All seven cars in the motorcade were also attacked in this well coordinated operation. All vehicles sustained some damage. Sources from Georgia's Security Service fear that at least seven if not two dozen attackers were involved in the military operation. Police and security officials found numerous guns and addition RPG rounds in the firing positions which were abandoned by the attackers. Two bodyguards were killed and six were injured. One of the terrorists was killed. He was carrying a Russian passport, but did not appear Russian. The attempt occured in Gorgasali Square along the route to SHEVARDNADZE's home. No one has claimed responsibility for the attack but suspicions run high that this was a foreign planned and carried out operation. At present the capital is calm. All roads have been sealed and a search is underway for the attackers. Police and security officials are actively investigating the attack. They do not believe that this is the result of any internal political conflict.

Following on the heels of the resignation last week of Armenian President TER-PETROSYAN and a reported bomb attempt on Azerbaijan President Geidar ALIYEV, the question arises: Are these events part of a larger plan to destabilize the Caucasus region? If so, this attempt might be part of a larger strategic plan by otheroutside forces to influence pipelines, oil exports, and the regional domestic stability. One diplomat from the region is quoted as saying, "Now, the fight between Russia and the Caucasus is fully out in the open. This military style attack shows us their true intentions. They will do anything to stop the oil going west."

Armenian Presidential Candidates Prepare

· National Democratic Party (NDU) leader Vazgen MANUKYAN, who lost to TER-PETROSYAN in 1996, has now been joined by Armenia's small Communist Party's first secretary Sergei BADALYAN in the Presidential running. Soviet-era dissident Paruir HAIRIKYAN also announced his candidacy.

What may be more interesting, who is not competing. Defense Minister Vazgen SARKISYAN, a major player in the ousting of TER-PETROSYAN, told the newspaper Armenian Republic he will not run for President or form a military dictatorship. Armenian Prime Minister and acting President Robert KOCHARYAN has said that it is highly unlikely that he will compete in the elections since he is not an Armenian citizen, which is a requirement for candidacy. He has called for a resumption of the Nagorno-Karabakh peace talks within the framework of the OSCE Minsk Group. KOCHARYAN added it would be "correct" for the three Minsk Group co-chairmen to express their support for parallel direct talks between the Karabakh and Azerbaijani leaderships. Baku has consistently rejected. The Armenian Pan-National Movement, who supported TER-PETROSYAN is facing a split over whether to declare their own candidate or endorse one of the others. Deputy chairmen, Andranik HOVAKIMIAN and Ararat ZURABIAN support these options, but party chairman Vano SIRADEGHIAN said he will quit the party if it participates in the vote.

Both MANUKYAN and KOCHARYAN call for the maximum number of international election observers to ensure a free and fair vote. The Associated Press stressed that the focus of the election will not be on political reform, but on untapped oil reserves underneath Nagorno-Karabakh. Certainly, world leaders will be watching this election as the stability in the region depends on the continuation of the peace process in Nagorno-Karabakh. The US in the past has back Yerevan because of influential Armenian lobbies. Russia has backed Yeveran because of its strategic importance. But as commercial gains overpower political aims, it is unclear whether oil will stretch Washington and Moscow's support thin.

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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