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

Friday, March 20, 1998

Russian Federation

Politics

Spy Hysteria Surrounds German Airflight

· On the heals of tit-for-tat expulsions of diplomats accused of spying between Russian and Norway, Moscow now is investigating an illegal flight of a German airplane over sensitive military airfields and bases Wednesday. The Russian Defense Ministry does not rule out that the German plane was spying over Russia's Kaliningrad region. The plane flew over several military airfields and bases of the former 11th Army and the Baltic Fleet, and over positions of radio engineering and air defense troops. The deputy commander of the air defense force of the Baltic Fleet, Major General Fyodor KRISANOV, said the plane was monitored during its one hour 31 minute flight, with the pilot refusing to go on the waves. KRISANOV said bad weather conditions prevented jet fighters to force the plane to land. The Defense Ministry has determined that the German pilot, named ROOD, has a clearance for flights in complex weather conditions and has a good command of Russian and English. ROOD was contacted by the crew of a passenger Tu-134 plane on route from Khrabrovo to Moscow, informed in English that he had crossed Russia's border, and given coordinates of an airfield at which to land. The pilot did not respond and returned into an international air lane. This incident is sure to be discussed when the Russian, German, and Spanish secret service agencies meet in Munich on March 24th. The three forces will also concentrate on matters concerning the conduct of intelligence and counterintelligence activities and seek to identify secret service actions which may infringe on human rights.

Rus-Iran To Cooperate on Oil and Gas Projects

· Russia's gas giant Gazprom, Zarubezhneft and National Iranian Oil Company (NIOC) have reached

an agreement on joint implementation of several oil and gas projects in Iran. Gazprom and NIOC also reached a tentative agreement on joint efforts to develop the Iranian gas transportation network, the Interfax news agency reported. Zarubezhneft General Director Oleg POPOV said his firm and the NIOC had signed a protocol on the participation by Zarubazhneft in the restoration of the oil production capacity on the Sorush offshore field. Zarubezhneft has also sent NIOC a proposal on restoration of seven wells and drilling of two new wells on this field, POPOV said. Zarubezhneft will conduct drilling operations on the first block of the Southern Pars field. A draft intergovernmental agreement on cooperation between Russia and Iran in the oil and gas sector was prepared, however, a signing date has not been determined.

Budget and Other Bills to Be Passed

· Russian President Boris YELTSIN's press secretary said today that YELTSIN will most likely sign the 1998 budget before meet with the leaders of France and Germany in Moscow on March 25th. Under the Constitution, the president must decide on the budget within two weeks after approval by both the houses of Russian parliament. This is the longest the Russian government has operated without a budget for the current year. The government has been using 1997 figures as guidelines for spending this year.

The Russian State Duma will consider a total of 108 bills at nine plenary meetings during April. The most important bills to discuss

Today's News Highlights

Russia

Duma Passes Municipal Bonds

Rosneft Sale Announced

European Republics

Ukraine Creates New Gold JV

Ukraine T-Bill Attracts Investors

South Caucasus & Central Asia

Giorgadze Still Free in Russia

ECO Members Define Agenda

Tajik GDP Increased in 1997

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March 20, 1998

Intercon's Daily

include the ratification of the Russian-Ukrainian Treaty on Friendship, Cooperation and Partnership, Russian Budget Code, state property privatization, procedure for passing federal constitutional laws and federal laws, and military reform financing. The first deputy speaker RYZHKOV expressed concern over the slow work of State Duma committees on drafting federal constitutional laws. He called upon lawmakers to be more professional and efficient in their work, to improve coordination with the Russian president and government, and to prevent unjustifiable disruption to meetings, as it happened in March.

Rus-Mongolian Discuss Economic Cooperation

· The Russian-Mongolian inter-governmental commission for trade, economic, scientific and technological cooperation, led by Russian Deputy Prime Minister Viktor KHLYSTUN and Mongolian Infrastructure Development Minister Galsandagvyn NYAMDAVA held their annual meeting today. The meeting focused on evaluating past resolutions between the Soviet Union and Mongolia as well as discussing future treaties and agreements for economic cooperation. Mongolia is eager to participate in fuel and power projects that are being discussed in the Asian region. The talks also attempted to find suitable resolutions to complicated issues related to Russia's property, specifically social and cultural facilities built by Soviet organizations in Mongolia, and the problem of joint ventures.

Economy

Ruble = 6,094/$1.00 (NY rate)

Ruble = 6,096/$1.00 (CB rate)

Ruble = 6,075|6,117/$1.00 (buy|sell rates)

Oct Nov Dec Jan Feb Mar

Duma Passes State, Municipal Securities

· The Russian State Duma passed in third reading today a bill on the issue and circulation of state and municipal securities in the form of bonds and other securities. The bill stipulates that such securities, "may not be used to repay tax debts and other mandatory deductions to a relevant budget." It states that Russia's liabilities resulting from the issue of securities must be calculated in rubles. Securities may be issued only if approved by a federal law, as well as by regional laws or local government ordinances on the relevant budget for a current fiscal year. The bill states that the maximum amount of funds used to finance the budget deficit in a current fiscal year should not exceed 15 percent of regional budget revenues, exclusive of financial assistance from the federal budget, and 10 percent of local budget revenues, exclusive of financial assistance from the federal and regional budgets. The document must be approved by the Federation Council.

Wage Debt Rises to 7M Rubles

· Russia's wage debt to workers on the state payroll increased by 20.9 percent in February, totaling 7,636 million rubles as of March 1. The Russian State Statistics Committee said the overall wage debt grew 4 percent last month, totaling 50,132 million rubles.

Statistics Com. Releases Economic Figures

· The Russian State Statistical Committee Thursday released figures showing that the volume of Russia's gross domestic production increased 0.7 percent in January to February of 1998 as against the same period of 1997. The GDP reached 393.1 billion denominated rubles. The volume of the industrial production increased 1.4 percent and amounted 263 billion rubles. The Statistical Committee announced Tuesday that consumer prices rose 0.4 percent in Russia from March 1 to March 16. The rates of average daily growth of prices in March dropped to 0.025 percent from 0.032 in February. The State Statistical Committee predicts that if the current rates of growth of prices of goods and services persist the inflation rate in March will be 0.8 percent as against 0.9 percent in February.

Business

Let The Bidding Begin/ Rosneft Sale Announced

· The terms of what has been billed the biggest

When you need to know it as it happens

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tender of 1998 were announced today for the sale of Rosneft, the last major holding in the oil industry. On Thursday, Prime Minister Viktor CHERNOMYRDIN signed a decree approving the sell-off of 75 percent plus one stake of Rosneft. The decision comes following internal government disputes over the amount of stake to be sold. The government had been considering selling only 50 percent plus one, leaving a veto stake. Investors demanded the larger stake of 75 percent plus one, which will give the winner almost complete control over the company. The terms are a starting price of $2.1 billion with a required $400 million investment and a 45 day bidding period beginning March 24th. Last year, Rosneft produced 90.1 million barrels of crude. The company controls six exploration and production units and three refineries as well as a network of marketing companies. Three major groups have already announced plans to bid for Rosneft. Royal Dutch Shell, LUKoil, Russia's number one oil producer, and Gazprom, the world's largest gas company have teamed together. British Petroleum is linked with Sidanko, controlled by Uneximbank run by Vladimir POTANIN. The Russian oil company Yuksi, formed from Yukos and Sibneft, is seeking a western partner to team up on the bidding and continue cooperation in the future. It is negotiating with four major oil companies of the US and France, including Amoco. Bidding for the last oil holding in the state coffers, is sure to bring fierce competition between these large corporate blocks.

Foreign Investors Return to Ukraine's T-Bills

· Despite concerns over the International Monetary Fund suspension of a standby loan and internal slanderous battles between candidates for the upcoming Ukrainian parliamentary elections, foreign investors have steadily been returning to the Ukrainian treasury bill market this week. Investors, who had been purchasing the T-bills on off-shore secondary markets, found that demand had driven interest rates down to the same level as the primary market in Kiev. According to Alexander BAZAROV of Credit Suisse First Boston investment bank in Kiev, the inflows of dollars over the past three days is greater than the amount of dollars that came in the T-bill market for January and February combined, The Financial Times reported. The gryvnia, which depreciated by 6 percent since the new year, has strengthened slightly as a result of the demand. On Wednesday, Ukraine's Central Bank lowered the interest rates for the first time since November's sharp increase in response to the Asian financial crisis. The Lombard rate fell from 48 to 45 percent and the financing rate from 44 to 41 percent.

South Caucasus & Central Asia

Burchuladze Released, Absandze Extradited

· An official of the Georgian embassy in Moscow said that the Georgian government is not insisting on the extradition of Nemo BURCHULADZE, former vice-speaker of the Georgian parliament and supporter of ex-President Zviad GAMZAKHURDIA, who was arrested in Moscow on Tuesday. BURCHULADZE was released on bail by Russian police on Thursday. The official said, "Georgian authorities are keeping President SHEVARDNADZE's promise to guarantee Burchuladze's immunity and hope that, if necessary, he will come to Tblisi to give personal evidence." The Georgian President gave these guarantees to BURCHULADZE when he mediated between the Georgian authorities and the Zviadists, who captured four UN observers in Western Georgian in February. BURCHULADZE was wanted in Georgia for his participation in anti-state activities. Former Finance Minister in GAMSAKHURDIA's government Guram ABSANDZE was extradited to Georgia and taken into custody on Thursday. He is charged with treason, embezzlement of $2 million of state property, the murders of six Russian servicemen, and

European Republics

Ukraine Sets Up New Gold Company

· The Ukrainian government has created a new state gold company, ZAT Ukrayinski Polimetaly to replace Ukrzoloto Company. The latter was disbanded by the government last October for failing to boost gold output. Deputy Industrial Policy Minister Sergey HRYSHCHENKO said that Ukrayinski Polimetaly is a state joint stock company. He said the government has also set up a special department in his ministry with the responsibility to oversee the new company's activities and gold extraction. HRYSHCHENKO noted that the government wanted to sell $500,000 of gold this year and invest the money in the gold industry. Six gold deposits have been discovered in Ukraine will combined deposits estimated to be 52 tons.

When you need to know it as it happens

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grand larceny with damages exceeding $1 billion. He is also accused of financing the February 9th assassination attempt on the President. In 1992 ABSANDZE was sentenced for taking part in a coup d'etat, but was then released on his own recognizance. As to the ex-Chief of the Georgian Security Igor GIORGADZE, whose extradition has been demanded by Tblisi, the embassy official had no comment. In a speach to the Asia Society, US Senator Sam BROWNBACK said that GIORGADZE, "remains under Russia's care despite repeated demands from Georgia that he be extradited. The Russians claim that they cannot locate him, however, even we here in the Congress could direct them to some of the places which Mr. GIORGADZE often visits in Moscow, among them places such as the gym belonging to the Ministry of Defense of the Russian Federation." Intercon sources have identified additional locations where GIORGADZE can frequently be found: the Mimino restaurant on Lenningrad Highway, meeting with the Vladimir MIRONOV the President of Moscow-Paris Bank, which is located near the Church of Jesus Christ the Saviour, the supermarket Unikor on Ossennyi Boulevard, and meeting with the former head of the Spetnaz Group Alpha of the Federal Security Service Michael GOLOVANOV at his security company office also named Alpha.

Monument Exports Turkmen Oil

· Britain's Monument and Gas PLC have become the first foreign exporters of Turkmenistan oil. An official of the state oil company Turkmenneft confirmed that the first tanker, with an estimated 30,000 barrels of Turkmen oil, has left the Caspian Sea terminal. The first shipment will cross the Caspian to Baku and then be delivered to oil terminals at the Black Sea port of Batumi in Georgia. Monument also plans to invest $90 million to boost Turkmen oil production from 7,500 to 20,000 barrels per day. The British company, under a 1996 profit sharing agreement, will give the Turkmen government 5,000 barrels per day and 25 percent of its Turkmen oil profits. Turkmenistan hopes to increase its oil and gas output from 4.7 million to 7 million tons in 1998.

US Promotes Relations with Uzbekistan

· US Ambassador to Uzbekistan Joseph PRESEL gave his first press conference in Tashkent in which he stated that the US is eager to promote its relations with Uzbekistan now and in the 21st century. He said the US is ready to contribute to regional security, to democratic and economic reforms, and to Uzbekistan's integration into the world community. PRESEL discussed the need to attract foreign investment and make the Uzbek national currency convertible. He said its present non-convertibility tells negatively on the republic's economic stability. "My priorities as ambassador, besides consolidating and deepening the bilateral relations, will include the observance of human rights in this country and problems linked with the free democratic and independent press here." PRESEL is the third American ambassador to Uzbekistan.

ECO Sets New Agenda For Cooperation

· A unified system of highways, railways and civil aviation will be built across the ten states of the Economic Cooperation organization by the end of the century. ECO secretary general Onder OZARN announced the new agenda for cooperation at the closing of the second meeting of ministers of transportation and cooperation in Ashkhabad, last Sunday. The ministers also agreed to complete a unified system of communications among member states. Set up by Pakistan, Iran and Turkey, the ECO includes Turkmenistan, Uzbekistan, Kazakhstan, Azerbaijan, Tajikistan, Kyrgyzstan and Afghanistan. During the first meeting in 1993, a general plan for transportation development was ratified. Since then, 300 kilometers of railway has been built from Turkmenistan to Iran. A summit of ECO member states is scheduled for May to discuss the development plan.

Tajik GDP Increased in 1997

· Tajikistan's GDP grew last year for the first time since 1991, RFE\RL Newsline reported. Presidential spokesman Zafar SAIDOV gave no figures, except for foreign trade, which he said increased 9.9 percent in 1997.

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

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