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

Wednesday, March 18, 1998

Russian Federation


Russia Expels Two Norwegians

· In retaliation to last week's expulsion of five Russians from Norway on espionage charges, Russia on Tuesday decided to expel two Norwegian diplomats. Rune CASTBERG, a counselor of the Norwegian Embassy in Moscow, and Ole BJORNOY, consul of the Norwegian general consulate in Murmansk have been accused of being involved in, "activities incompatible with their official status," which is the definition used for espionage. The Russia Foreign Ministry told Norway's Ambassador to Moscow Per TRESSELT that the two diplomats have been declared persona non-grata and must leave Russia by Friday. A Russian Foreign Ministry press release said, "We draw attention to the fact that the acts of Norwegian special services towards Russia, her citizens are not helpful to a normal development of cooperation between our countries." Norwegian Prime Minister Kjell Magne BONDEVIK said Russia had no reasons to accuse Norwegian diplomats of espionage. "We had to act last week because those five diplomats were involved in activities outside of their diplomatic status. But the reaction that came from the Russian side today was groundless," he said. The premier stressed he did not want the further escalation of the conflict. He hopes the situation will normalize because Norway wants to develop good relations with Russia.

However, the spy row has already resulted in the cancellation of an official visit to Russia by BONDEVIK and a trip by the King of Norway planned for May has been put on hold. Norway claims Russia was operating a spy network out of its mission in Oslo, a charge Moscow denies. Norwegian Foreign Minister Knut VOLLENBAEK said that Norway, "has no plans to react further."

Russia Agrees to Arms Embargo on Yugoslavia

· The Russia, United States, France, Italy, Germany and Great Britain have agreed on a draft UN Security Council resolution that reimposes a complete arms embargo on Yugoslavia for its crackdown in Kosovo. US and European officials say the resolution was hammered out during talks this week at the United Nations between representatives of the six-nation contact group responsible for managing the fragile Balkan peace. State Department spokesman James P. RUBIN predicted the Security Council would formally take up the issue in the coming days. The six powers agreed during a meeting March 9th in London to reverse a slight easing of sanctions on Yugoslavia. The contact group, except for Russia, also agreed to deny visas for senior Serbian officials and to place a moratorium on government financed export credits for projects there until the repression stops aggressive measures and Belgrade enters negotiations with the Albanian leaders in Kosovo. The CLINTON administration also canceled plans for a Serbian consulate in Washington, an expansion its UN mission and US landing rights for the Yugoslav national airline. A delegation from the Russian State Duma has left for Kosovo. The Duma condemns, "any manifestations of terrorism, extremism and separatism, and unacceptable attempts to undermine Yugoslav statehood." The Duma believes that parties to the conflict and the world community must act strictly within the bounds of international law and hopes for constructive dialogue to promote stabilization of Kosovo. The delegation's visit

Today's News Highlights


IFC Launced Dollar-Ruble Bond

Areoflot Increases Flights

European Republics

Ukraine Negotiates Oil Loan

Rus-Ukraine Discuss WTO

South Caucasus & Central Asia

Georgian ex-FM to be Extradited

Armenian Elections Fair?

Turkmen-Ukraine Gas Approved

Uzbek Negotiates Gas Debt




March 18, 1998

Intercon's Daily

coincides with Russian Foreign Minister Yevgeny PRIMAKOV plans to meet with the leadership and foreign ministers of Bosnia and Herzegovina, Croatia and Slovenia. PRIMAKOV's visit was planned before the conflict in Kosovo. His talks will concentrate on easing the situation.

Rus. Oil Cos. May Receive Tax Breaks

· The Russian Ministry of Fuel and Energy is waiting for a presidential decree to stabilize the oil sector and documents to lower the tax burden of Russian oil companies. The decree is expected to be signed by the end of this month. Minister of Fuel and Energy Sergei KIRIYENKO said the documents will increase allocations for the restoration of the companies' mineral-raw material base. Limits on the consumption of thermal energy and electricity will also benefit the Russian oil industry. They will ensure timely consumer payments to all enterprises of the fuel and energy complex, including oil companies. KIRIYENKO stressed that the decree is desperately need by the oil industry which has been faces with the drop of world oil prices. The world oil prices have dropped by 40 percent as compared to the average yearly cost of $19.3 per barrel in 1997.


Ruble = 6,091/$1.00 (NY rate)

Ruble = 6,093/$1.00 (CB rate)

Ruble = 6,0700|6,116/$1.00 (buy|sell rates)

IFC Launched Dollar-Ruble Bond Issues

· The International Finance Corporation (IFC) Tuesday announced the launching of a 100 million dollar-denominated Russian ruble-linked global bond issue. This is IFC's debut launching into the Russian ruble market. The one-year notes carry an annual coupon of 20 percent and were issued at a price of 97.25 percent of par. The return to investors is connected to the Russian ruble foreign exchange rate at the maturity of the notes. The proceeds of the issue will be changed into US dollar floating rate funds. The lending manager of the issue is Merrill Lynch International, London, with seven co-managers in the syndicate group. The issue, launched on March 12, is expected to be placed with investors in the United States and Europe. International Finance Corporation is a member of the World Bank Group and the largest multilateral source for financing private sector projects in developing countries.


Ciubuc Agrees To Pay Off Gazprom Debts

· Moldovian Prime Minister Ion CIUBUC following negotiations with Gazprom announced that Moldova is going to pay off its gas debt to Russia in cash and exports of goods. Moldova owes $594 million for natural gas imports in 1996-98, of which $159 million is a late penalty charge. Its breakaway Dniester enclave accounts for 388 million dollars of the debt. The Dniester region paid some 14 percent of its gas debt in 1994 and 1998. CIUBUC said he discussed a tentative scheme where by Moldova would pay $40 million in cash and $100 million in exports of material-technical resources and food to Gazprom's subsidiaries and to Russia's gas regions. The sides also agreed to continue work on restructuring of part of Moldova's gas debt, of $100 million, through the issue of government securities to be owned by Gazprom. They also agreed to draft an accord, during March-April of 1998, which would give Gazprom a part in privatization of Moldova's industrial and electricity enterprises, in which a total stake worth $50 to $70 million is to be turned over to Gazprom in repayment of the gas debt. This continues Gazprom strategy of gaining ownership and equity as payment for past debts.

Aeroflot Expands European Destinations

· The Russian International Airlines company Aeroflot announced plans to begin daily flights to virtually all European capitals, including Lisbon, Prague, Rome, Milan, and Brussels, on March 29th. Aeroflot spokesman Alexander LUCHANINOV said passengers will have the opportunity to fly when it is convenient for them and not to wait for a certain day. This new summer schedule also aims to earn maximum profits for the air company and increase efficient use of the plane fleet. For instance six new Boeing 737 jetliners which will be received by the company this year, will fly to Europe by day, and on their return to the east and the south of Russia. Aeroflot also plans to increase the number of flights to Jakarta and Ho Chi Minh, as well as New York, Chicago and Mediterranean resorts. The number of flights to America will be also increased from St. Petersburg. Aeroflot deputy commercial director Leonid ITSKOV said the airlines plans to carry at least 4.5 million passengers in 1998, against 3.9 million in 1997. He said that the switch over to the

When you need to know it as it happens




March 18, 1998

Intercon's Daily

summer schedule will increase the number of flights to 700 per week.

mately $2 million worth of state property. Under decision of the Georgian State Council, he was released in August with others accused of revolt on recognizance not to leave the country. Since his escape to Russia, ABSANDZE has been charged with treason and armed robbery of personal and state property. Georgian Deputy Prosecutor-General Revaz KIPIANI at a press conference in Moscow today said ABSANDZE is also charged with murders of Russian army servicemen and grand larceny with damages exceeding $1 billion. Under the convention on "Bilateral Assistance on Civil, Family and Criminal Law Affairs, signed by Russia and Georgia on January 22, 1993, Georgian Chief prosecutor's repeatedly appealed for assistance in arresting and extraditing ABSANDZE and other wanted criminals on March 15, 1994, July 4, 1995, and August 30, 1996. Each time all legal documents concerning ABSANDZE's arrest, detention and evidence of their residence in Russia were presented to Russian authorities, including a video tape of a Russian television program in which they appeared. On June 3, 1997, the Russian Ministry of Internal Affairs told Georgia that on March 1, 1996, ABSANDZE had become a Russian citizen and therefore could not be extradited. Today, Russian police detained eight other GAMSAKHURDIA supporters, including Nemo BURCHALADZE. BURCHALADZE returned last month to Georgia at the request of kidnappers of UN observers to attend talks SHEVARDNADZE. It is unclear whether Tariel GELANTIA and Constantine PIRTSKHALAVA, also wanted by the Georgian government, are included in the group arrested today. ABSANDZE, BURCHALADZE, GELANTIA, and PIRTSKHALAVA were all charged under 65th and 78th sections of the Georgian Criminal Code.

These arrests follow Georgian President Eduard SHEVARDNADZE criticism Monday that Russia has failed to extradite former Georgian Security Minister Igor GIORGADZE, who is accused for having organized an attempt on the President. Tblisi officials have also indicated that other suspects connectd with GIORGADZE were involved in the attempted assassination attack last month. SHEVARDNADZE noted that, "Russian officials have done everything to let the perpetrators of the two attacks...find refuge there." He added that, "I don't think the Russian leadership will benefit from certain forces attempting to create for Russia the image of a nation sponsoring

European Republics

Ukraine Negotiates Loan With German Bank

· The Ukrainian government and Germany's Westdeutsche Landesbank agrees to restructure a 70 million Ecu ($76.1 million) loan to Ukraine's second largest oil refinery, AT Lisichansky Naftopererobny Zavod (LINOS). LINOS must repay 63 million Ecu by 2003. LINOS, which has already paid 9.6 million Ecu, was to have paid the entire loan by 1999. The 1992 loan was to finance the building of a polypropylene plant by an Italian company. The State Property Fund plans to sell a 40 percent stake in LINOS this month to the highest bidder. The starting price is 60 million gryvnias ($29.5 million).

WTO's Membership For Ukraine and Russia

· In a meeting on Monday Ukraine's First Deputy Foreign Economics and Trade Minister Andrei GONCHARUK and his Russian counterpart Georgy GABUNYA agreed that Ukraine and Russia should be included as members of the World Trade Organization (WTO). They said that worldwide economic cooperation would not be possible until big nations, Ukraine, Russia, and China, were included in the WTO. The two sides signed a protocol to expand their trade cooperation and further the consultation process. They agreed that Ukraine and Russia would unlikely cooperate effectively with European and other countries around the world, if they were not allowed into the WTO. Being shut out from the world trade regime, GONCHARUK said, Ukraine could hardly get around with issues such as trade protection, and attract foreign investment.

South Caucasus & Central Asia

Georgian Ex-Finance Min. Arrested in Russia

· Georgia's former finance minister, in the government of late president Zviad GAMSAKHURDIA, Guram ABSANDZE has been arrested in Russia's Smolensk and is to be extradited. Investigation officials of the Smolensk prosecutor's office stated that ABSANDZE was detained on Tuesday, but declined to give details or a date of his extradition. ABSANDZE was convicted by the Georgian court in 1992 on charges of involvement in an attempted coup of January 24, 1992 and embezzling approxi

When you need to know it as it happens




March 18, 1998

Intercon's Daily

terrorists," RFE/RL Newsline reported. Comment: Clearly, ABSANDZE's arrest is merely a gesture from Russia, which ignores legal bilateral support between two sovereign states and reverses Russia's original policy of not extraditing ABSANDZE based on his Russian citizenship. Russia is using this arrest to deflect and avoid the extradition of the priority criminal GIORGADZE. SHEVARDNADZE's statement calling Russia a nation sponsoring terrorists links Russia with rouge nations like Iran, which Russa is also cooperating with militarily.

Armenian Elections Free and Fair?

· The Central Election Commission (CEC) secretary Armenui ZOGRABYAN said that Armenian Prime Minister and acting president Robert KOCHARYAN won 39.14 percent in a Monday presidential election while his closest rival Karen DEMIRCHYAN, the former Soviet leader, received 31.16 percent. Former Soviet dissident Vazgen MANUKYAN won 12.14 percent and communist leader Sergei BADALYAN received 11.21 percent. ZOGRABYAN said there are still votes to be counted in the north-western region of Shirak and the south-eastern region of Syunik. Many conclude KOCHARYAN and DEMIRCHYAN will advance to the second round election on March 30th. However, controversy still surrounds whether the election was free and fair. Six out of the 12 candidates on Monday signed a statement condemning the elections as being marred with "violation, falsification, and terror." Chairman of the Armenian Democratic Party Aram SARKISYAN, also a presidential candidate, called the joint statement, "untimely and dangerous." He said he wanted to see the facts on which the statement drafters based their charges. Agvan VARTANYAN, spokesman for the election staff of Armenian Prime Minister Robert KOCHARYAN, said that it is strange that five candidates claim the atmosphere of violations and harassment during the voting without giving any facts. Another presidential candidate, Artashes GEGAMYAN, abstained from joining the statement. The CEC said the elections were normal, free and fair throughout Armenia. On the other hand, the

Council of Europe and OSCE observers noted some violations. According to an OSCE statement, "this first round of elections fell short of the standards to which Armenia has committed itself in OSCE documents." The OSCE observers found electoral law violations in 15 percent of the more than 800 polling stations. Chief OSCE observers Sam BROWN said, "Although the election was deeply flawed, we don't believe the outcome would have been in any way altered by the violations we observed."

Turkmen Gas to Ukraine Approved

· An agreement for up 20 billion cubic meters of Turkmen gas to reach Ukraine via Russia under an accepted transit tariff was reached during a telephone conversation between Russian Prime Minister Viktor CHERNOMYRDIN and Turkmenistan President Saparmurat NIYAZOV on Tuesday. Chairman of the Board of Russia's leading energy company Gazprom Rem VYAKHIREV will meet with Turkmen officials in the next few days to confirm plans. Russia gave its consent to activate the dialogue on the resumption of Turkmen gas export following corresponding telephone negotiations between the NIYAZOV and Ukrainian President Leonid KUCHMA. The Ukrainian leader said that due to the lack of gas Ukraine's enterprises are going through hard times and asked NIYAZOV for help. NIYAZOV and CHERNOMYRDIN expressed satisfaction with the development of cooperation based on principles of equality and mutual benefit.

Uzbek Negotiates Gas Debt To Turkmenistan

· An Uzbek governmental delegation has coordinated a payment program of the $24 million debt to Turkmenistan for 1997 railroad and communication services. $15 million of the debt will be paid with the Uzbek supplies of mineral fertilizers, technical oils, electric appliances and medicines. The remaining $9 million will be paid with hard currency. In a telephone conversation Turkmen President Saparmurat Niyazov and Uzbek leader Islam KARIMOV exchanged opinions on the Turkmen-Uzbek commission on trade, economic, scientific, technical cooperation.

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

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1998, Intercon International, USA.

When you need to know it as it happens