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 27, 1998

Russian Federation

Politics

Kiriyenko Nominated As Prime Minister

· Russian President Boris YELTSIN in a radio address to the nation announced that he has nominated Sergei KIRIYENKO as Prime Minister for the Russian State Duma to approve. However, YELTSIN warned he would dissolve Parliament if it fails to vote on the appointment next Friday. Under article 111 of the Russian constitution, the State Duma must approve KIRIYENKO's candidacy within a week. If it fails to approve the President's candidate three times, YELTSIN has the right to disband the Duma and call for new parliamentary elections. KIRIYENKO held the post of Fuel and Energy Minister, prior to being appointed acting Prime Minister after YELTSIN sacked Viktor CHERNOMYRDIN and the whole government on March 23rd. The President was pleased with his choice because KIRIYENKO is, "not linked with any [political] parties or movements. At the same time he is capable of conducting talks with anyone. He's ready to listen to the opinions of different sides." Responding to criticism that KIRIYENKO is too young and lacks experience, YELTSIN said, "Professionalism and stamina aren't defined by your date of birth...The age of ministers who will work in the government is not a decisive factor. There are good ministers at 30 as well as 70. What is important is that a person should know his job, have fresh ideas, and unconventional approaches. He should be able to achieve set goals firmly and decisively." While YELTSIN promised to support KIRIYENKO's plans to inject more energy into economic reforms and new cabinet, he warned KIRIYENKO that he has, "no time to warm up." The President said KIRIYENKO should without delay concentrate on social problems and tackle the wage arrears situation in the state sector and the military and administrative reforms.

KIRIYENKO will face a tough fight for approval in the Duma, which is dominated by Communists and nationalists. The opposition has already stated that it wants reforms to be scaled back, while KIRIYENKO plans to speed up and broaden free-market reforms. The leader of the Duma's Communist Party faction Gennady ZYUGANOV, said the president's nomination of Sergei KIRIYENKO for prime minister is a bad choice. ZYUGANOV also stated that the President should not threaten the Duma with dissolution. With 20 million Russians jobless and 15 million living on what is below the subsistence level, the President cannot afford to behave like this, he said. Former First Deputy Premier Boris NEMTSOV supports the President's nomination saying that, "Sergei KIRIYENKO will be able to form an effective, vigorous cabinet able to tackle the existing problems vigorously and to be solving them consistently."

Yeltsin Signs 1998 Budget

· Russian President Boris YELTSIN signed the 1998 federal budget into law today, which had been approved by the Russian State Duma and Federation Council earlier this month. The budget sets 1998 government spending at 499.9 billion rubles ($83.3 billion) and revenues at 367.5 billion rubles ($61.2 billion). The maximum budget deficit may be 132.3 billion rubles ($22 billion) or 4.7 percent of the country's gross domestic product. The main aims of the Russian economic policy for the year include growth of the GDP by at least two percent, growth of real incomes of population at least by three percent, an

Today's News Highlights

Russia

Transport Fees Cut For Oil Cos.

Luzhkov Launches Newspaper

Sidanko Out of Rosneft Bidding?

Baleyzoloto Stakes Increase

European Republics

UkraineParliamentary Elections

Lithuanian Cabinet Confirmed

South Caucasus & Central Asia

Rus-Kazakh Pres. Com. Meets

Shell Gives Pipeline Update

Politics-Economics-Business

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Friday

March 27, 1998

Intercon's Daily

end to the slump in agricultural production, implementation by the state of all obligations to economic enterprises and to population. The government is instructed to submit, within a month, a schedule to the State Duma for paying arrears of 15.3 billion rubles to citizens having children. YELTSIN told acting Prime Minister Sergei KIRIYENKO, who has been nominated as Prime Minister, to guarantee quarterly report of the cabinet on the execution of the budget from the beginning of 1998.

Transport Fees Cut for Rus. Oil Companies

· Former First Deputy Premier Boris NEMTSOV today announced that Russian companies will not be charged for oil pumping through state-owned pipelines beginning April 1st. This is part of the government efforts to help cover companies' losses after a worldwide slump in oil prices. NEMTSOV said that a conference he held on Thursday passed a decision to back the petroleum industry. The Russian government has drafted two presidential decrees about supporting petroleum companies. The decrees are soon to be submitted to President Boris YELTSIN for consideration, NEMTSOV said. He also said that an important decision is being prepared regarding the timely pay of wages.

Meanwhile, Fuel and Energy Ministry spokeswoman Yelena TELEGINA said Russia refuses to reduce oil production to overcome the consequences of the fall of oil prices, but is ready to discuss ways to settle the crisis with other oil producing nations. "We want to work out mechanics which would help coordinate the efforts of many countries aimed at preserving stability on the world's markets," TELEGINA said. She said that it is prudent to think of a solution which will prevent such situations from happening again. As Intercon reported on Thursday, LUKoil plans to reduce oil exports by 1 million metric tons this year.

Economy

Sino-Russian Cross-Border Trade Doubles

· Cross-border trade between the Chinese province of Heilongjiang and the Far Eastern regions of Russia has doubled since the beginning of 1998, amounting to $146 million. The increment was achieved on the basis of last year's success when cross-border trade between the neighboring regions of Russia and China topped $1 billion, growing by 42 percent as compared with the previous year, a

Heilongjiang government official reported. A common border, which is 3,045 kilometers long, connects Heilongjiang with Russia's Maritime and Khabarovsk territories, the Jewish Autonomous Region and the Amur Region. Located along the border with Russia are twelve Chinese cities which are oriented towards the development of trade-and-economic cooperation with Russia.

Ruble = 6,102/$1.00 (NY rate)

Ruble = 6,104/$1.00 (CB rate)

Ruble = 6,086|6,122/$1.00 (buy|sell rates)

Oct Nov Dec Jan Feb Mar

Russia Needs Foreign Investments

· Deputy Chairman of the Russian government, Minister of Agriculture and Food Products Viktor KHLYSTUN stated on Tuesday at a Russian-Dutch seminar on Financing and Investments in Russia that it is more important for Russia to obtain foreign investments than manufactured goods. Russia with the aid of foreign investors has been implementing over 300 large-scale projects in the sphere of the agricultural production, as well as in the processing of products and raw materials, the machine- building and the food industry. KHLYSTUN highly appraised the activities of a number of Dutch firms which invested their resources in the construction of factories, introduced progressive technologies and high-yield crops in Russian fields. He called on Dutch businessmen to increase their investment activities. Participants in the seminar noted that Dutch businessmen appraised positively the possibilities of doing business in Russia. Many of them have rates of the annual business growth between 25 to 100 percent. The Dutch businessmen cited factors which impede their doing business in Russia. They include indefinite legislation, taxation, and custom facilities.

When you need to know it as it happens

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Business

Luzhkov Launches Newspaper

· Moscow Mayor Yuri LUZHKOV, a potential presidential candidate for elections in 2000, today launched a nation-wide daily called Russia. A newspaper with the same name was first launched in 1898 and Editor-in-Chief of the new Russia Tatyana TSYBA says the revival was timed to coincide with the centennial. LUZHKOV said in his greetings to subscribers that, "the resurrection of Russia will help us all better know each other, will promote understanding between all Russian regions." The daily will be backed by the Moscow government. It will have an initial circulation of 100 thousand copies.

Sidanko Unable to Bid In Rosneft Sale

· Just like Gazprom, industry analysts are wondering whether Sidanko will be able to find a loop hole and bid in what is being billed as the greatest state sale of the year, Rosneft. Novye Izvestiya has called on the government to bar Uneximbank from the Rosneft bid because its affiliate Sidanko oil has not paid the tax debts of its subsidiary the Angara Petrochemical Company, RFE/RL Newsline reported. The Sidanko oil company and British Petroleum have formed a consortium that is considered one of the leading contenders for the controlling stake in Rosneft. Under the terms of the auction, all competitors submit documentation proving they have no debts to the federal budget. A government commission on tax and budgetary discipline ordered Angara to pay its debts last December. On Wednesday, Intercon reported that Menatep, part of the Yuksi group, said that Gazprom cannot participate in the Rosneft tender because the state owns 40 percent stake in the company. The terms of the auction also stipulates that only companies and enterprises with a state interest not exceeding 25 percent may take part in the tender. Business tycoon Boris BEREZOVSKY, a controversial figure with regard to past tenders, who is believed to help finance Novye Izvestiya is one of the founders of the Yuski oil company.

Balgold owns licenses covering several gold deposits which together form the Baley Gold Project in southeastern Siberia. The largest of the deposits is the Taseevskoe resource containing more than 5 million ounces of gold. Armada also has a 49 percent interest in the Erdmin copper project in Mongolia, which is producing ten tons of copper cathode a day from a demonstration plant and is presently subject to a feasibility study for a six-fold expansion of the operation.

European Republics

Ukraine's Elections Bring Uncertainty

· Ukraine will hold parliamentary elections on Sunday March 29th for half of the 450 deputy seats. About 30 political parties and blocs are contending for these seats. The other half will be taken by winner-candidates in the majority constituencies. Analysts believe that out of the 30 political parties and alliances running in the elections, only a few have a real chance of clearing the 4 percent hurdle and win seats in the parliament. These are the Communist Party, Social Democratic Party, Narodny Rukh, Alliance of the Socialist and Rural parties, Green Party, Popular Democratic Party, led by Prime Minister Valery PUSTOVOITENKO, Agrarians and Gromada Party, led by former Prime Minister Pavel LAZARENKO. The threat of a left wing landslide is seriously being considered by the government. However, analysts say that no single faction, even the far left, looks likely to achieve the 226 out of 450 votes necessary to pass or veto legislation, let alone the feared 300 votes need to change the constitution or impeach the President, the Financial Times reported. But a coalition of left-wing and centrist parties could gather that many votes. These elections will bring about unpredictable returns and substantive changes in the political and economic life of the country. About 57 percent of the voters favor a candidate who will support the idea of Ukraine joining the Union of Russia and Belarus, according to a poll conducted by the Democratic initiative fund and the Socio-Gallup company. Only 17 percent of the voters would oppose such a candidate. "Regardless of what parliament is elected, the government is ready to work with it, look for mutual understanding and compromise solutions," PUSTOVOITENKO said.

Ukraine, President Leonid KUCHMA plans to deliver an address to the nation on Saturday and is hoping,

Armada Gold IncreasesRus. Baleyzoloto Stakes

· Toronto based Armada Gold Corporation will issue 3 million Armada Gold shares to shareholders of its Russian Baleyzoloto to complete acquiring of the final 15 percent equity in Baley Gold Project. The transaction is subject to the approval of the Toronto Stock Exchange and all other regulatory authorities.

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"for the electorate to make a conscious choice." The President noted that the country needs a parliament capable of switching from politics to economics. KUCHMA does not intend to sign a decree granting franchise in the parliamentary elections to Crimean Tatars who have a residence permit in the Crimea, but do not have Ukrainian citizenship. "I cannot violate the Constitution even if it is necessary to remove social tension," the Ukrainian President told journalists on Thursday. Leaders of the Tatar minority in Ukraine threatened to stage an act of disobedience on March 28th the day before parliamentary elections.

Lithuanian Cabinet Confirmed

· President Valdas ADAMKUS on Wednesday confirmed the new streamlined cabinet of Prime Minister Gediminas VAGORIUS. Ten ministers retained their posts, while there were two new members to the government. In a surprise move Mindaugas STANKEVICIUS, a former prime minister and a member of the opposition Democratic Labor Party, was appointed health care minister. Independent Edvardas MAKELIS replaced Conservative Vytautas KNASYS at the Agriculture Ministry. Four portfolios remain vacant: Telecommunications, Construction and Urban Planning, Education and Science, and European Affairs. The parliament plans to amend the law on the government next week to merge the first two with the Communications and Environment Protection ministries, respectively thereby further reducing the number of cabinet ministers, RFE/RL Newsline reported. The future of the European Affairs Ministry remains uncertain. The ruling Conservative and Christian Democrat coalition retains a majority in the new cabinet, which will continue to implement reforms.

South Caucasus & Central Asia

Kazakhs-Rus. Presidential Commission Meets

· Heads of the Russian-Kazakhstan Presidential commissions along with high-ranking officials of the Foreign Ministries and other departments held talks in Akmola this week. Russian Foreign Ministry spokesman Gennady TARASOV said that talks were posi

tive and emphasized that, "The need for contacts is stipulated by the fact that over five million ethnic Russians live in Kazakhstan. At the same time a considerable Kazakh Diaspora resides in Russia." The sides reached agreements on improving the implementation of bilateral treaties, in the field of human rights, contact between legislation's of the two countries, the maintenance of international legal standards in the sphere of human rights and interaction in the process of joining international treaties. TARASOV noted, that "participants in the meeting spoke for conducting sessions of the commissions for human rights and other similar structures of the Commonwealth of Independent States (CIS) on the establishment of a joint body of the CIS countries on human rights." Kazakh Foreign Minister Kasymzhomart TOKAYE said in an interview with Kazakh newspaper Panorama published today that the two countries were building a strategic partnership. TOKAYE said the upcoming state visit by President YELTSIN to Kazakhstan will mark a turning point in relations between the two countries, which were strained amid disagreements over the division of the Caspian Sea, Russian debt to Kazakhstan, and tariffs following the disintegration of the former Soviet Union.

Shell Gives Turkmen Pipeline Update

· Turkmen President Saparmurat NIYAZOV and Royal Dutch Shell executives on Thursday discussed the implementation of a construction project for a pipeline connecting Turkmenistan to Europe via Iran and Turkey. Earlier this year, Turkmenistan granted Shell the exclusive right to form an international consortium and draw up a feasibility study. Shell executives briefed NIYAZOV on its progress to this end. The company has wide connections in the world of technologies and finances, and its current task is to hit upon an effective combination of politics and business, they said. Access to the Turkish and the European market will give powerful impetus to the development of the national economy and ensure a rise in the standard of living of the Turkmen people, NIYAZOV said.

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

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