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

Tuesday, March 3, 1998

Russian Federation

Politics

Russian Deputy Foreign Minister In Pakistan

· Russian deputy foreign minister G. B. KARASIN and a Russian parliamentary delegation are in Pakistan for a two-day visit to discuss with Pakistani officials several issues including Afghanistan. Pakistan's Foreign Ministry said in a statement that these visits are taking place against the backdrop of a consultation process initiated between the two countries to promote understanding on all bilateral, regional and international issues. "Russia and Pakistan are increasingly aware of the need to adopt a fresh approach towards the development of relations in the changed realities of the post cold-war period," the statement said. The statement added that the two nations', "objectives and pursuits for peace and stability stem from their common desire to promote economic development and prosperity in the region." KARASIN will meet with Foreign Minister Gohar Ayub KHAN and senior officials from the Foreign Ministry. The speaker of Pakistan's National Assembly Ellahi Bakhsh SOOMRO plans to visit Russia on March 10 to 15th at the head of a parliamentary delegation.

Defense and Security Council to Merge

· Following the departure of Ivan RYBKIN from the Security Council, the Kremlin has suggested that the next logical step is to merge the Defense and Security Council to avoid parallelism in their activities, but only after the Defense Council ensures implementation of a military reform. A Kremlin official explained that it, "is no secret that the Defense Council was established after the 1996 presidential elections as a `counter-balance' to the then Secretary of the Security Council Alexander LEBED. Now, regarding the prospect of turning over the functions of military construction in Russia to the General Staff,

the functions of the Defense and Security Council would be identical in many aspects." According to presidential spokesman Sergei YASTRZHEMBSKY, the Defense Council has been abolished. Its personnel, along with that of the State Military Inspectorate, has been incorporated into the Security Council. The spokesman said, "The President's decree is... aimed at closer coordination of efforts toward reforming the whole system of defense and security." The move expands the Security Council's role in military policy, but reduces its influence on other matters, specifically relations with Chechnya. The responsibility of Russia's relations and negotiations with Chechnya is expected to be transferred from the Security Council to the Cabinet, YASTRZHEMBSKY said. He added that the role of the Security Council is to advise the President, similar to the National Security Council in the United States.

Kokoshin Appointed to Security Council

· Russian President Boris YELTSIN today appointed Defense Council Secretary and Chief Military Inspector Andrei KOKOSHIN as Secretary of the Security Council. KOKOSHIN was first deputy defense minister before being appointed to head the Defense Council and the newly created military inspectorate last August. The abolition of the Defense Council, created by YELTSIN in July 1996, is unlikely to have a major impact, since most of its members are also on the Security Council.

Rus-Japan Discuss Energy

· Russian Energy Minister Sergei KIRIENKO and Japanese

Today's News Highlights

Russia

CIS Re-elects Stroyev

Railway Int'l Conference

Rus-India To Produce Jets

German-Rus. Uranium Deal

European Republics

Ukraine Restricts Gas Use

South Caucasus & Central Asia

Chevron-Caspian Trans. Oil Deal

Turkey's Coast Guard in Georgia

Kazakh Assets to COPC

Politics-Economics-Business

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Tuesday

March 3, 1998

Intercon's Daily

Foreign Minister Keizo OBUCHI met today in Tokyo to strengthen dialogue on energy issues between the two countries by holding high-level talks. KIRIENKO's visit was arranged after Japan and Russia held their first round of bilateral energy talks in Moscow late last month. KIRIENKO said that Russia and four other nations will hold their second round of talks in April to work out details of a multilateral project to develop a natural gas field in Irkutsk in Eastern Siberia. The project, in which Russia, Japan, China, South Korea and Mongolia participate, plans the construction of a 3,500 kilometer pipeline from the field stretching to China, and possibly a further extension to Japan. The Russian Minister said the pipeline could be extended to South Korea to liquefy natural gas there for further transport to Japan. OBUCHI promised KIRIENKO that Japan will contribute fully to a meeting of energy ministers from the Group of Eight (G-8) leading nations to be held in Moscow on March 31 and April 1. At the energy talks, proposed by Russian President Boris YELTSIN during the G-8 summit talks in Denver in July, the ministers are expected to exchange views on specific energy issues such as global demand and supply, and the environment.

Japanese Minister for international trade and industry Mitsuo HORIUCHI told KIRIENKO that it is important to improve conditions for investment in order for Russia to draw more investment from Japanese companies. KIRIENKO again emphasized Russia's pledge to that Japanese companies involved in oil projects would be guaranteed tax-free conditions. He added that all tariffs imposed on machinery and equipment used for oil projects would be returned to Japanese Companies. He said Russia would take necessary steps to implement the tax system for oil projects properly. Tax-free conditions were first promised in 1996.

CIS Re-elects Stroyev as Chairman

· The Council of the Commonwealth of Independent States (CIS) Inter-parliamentary Assembly on Saturday unanimously re-elected Yegor STROYEV as council chairman for his third term. STROYEV serves as speaker of the Russian Federation Council. The council chairman is elected every year. A Russian has always held the post of chairman, since the beginning of the CIS. Meeting participants noted that STROYEV has done very much for forging unity among CIS parliamentarians. STROYEV said that

what matters is not the chairman, but the tasks facing the CIS. "We must either unite or part," he added. STROYEV said in spite of many difficulties, the CIS will exist, develop and strengthen. He added, forms of unification may alter along with the changing situation, the CIS countries will have to rely on advanced technologies and joint efforts to face and occupy a world market of great competition. Participants called for adoption of laws that are binding on all CIS members in order to promote their economic integration. The meeting also decided to set up a working group to draft an anti-terrorist convention. With differing viewpoints on unification from other CIS members, Ukraine, Uzbekistan and Turkmenistan were absent from the meeting.

Economy

Ruble = 6,073/$1.00 (NY rate)

Ruble = 6,075/$1.00 (CB rate)

Ruble = 6,047|6,103/$1.00 (buy|sell rates)

Svyazinvest to Sell Block of Shares

· Svyazinvest Director-General Nayil IZMAILOV on Monday announced that the Svyazinvest stock company plans to sell a 25 percent minus two shares state-owned stake at an investment auction for no less than $1 billion. According to ISMAILOV, their company is going to get a syndicated intermediary credit in the second quarter for financing investments, and to issue Eurobonds in the second half of the year. Capital investments of the company in the expansion of the communication network amounted to $1.7 billion in 1997. $320 million more were received in the form of credit resources from banks and in the form of credits against goods from equipment suppliers. Total revenues of Svyazinvest reached $6.4 million in 1997, with net profits of $1.2 billion. "We are preparing concrete investment projects, of which the best are selected with the help of contests. Financing is provided for them with the help of Russian and foreign banking structures," ISMAILOV said. He believes the main task of the holding is to attract financial resources for regional telecommunication companies directly through Svyazinvest.

Business

Railway International Conference Opens

· Senior officials of railways of Russia, other CIS

When you need to know it as it happens

Politics-Economics-Business

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Tuesday

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Intercon's Daily

members, China, Mongolia and North Korea are attending an international conference in Khabarovsk, Russian Far East. The organizer of the conference is non-governmental Organization of Railway Cooperation. The conference addresses issues in railway shipments of exports and imports, transit rates for 1998 and coordination of services. The 26-nation Organization of Railway Cooperation includes China, North Korea, Vietnam, Russia, Kazakhstan, Kyrgyzstan and Uzbekistan as eastern members. The cargo traffic is increasingly greater through border gates of the Russian Far Eastern railway. Shipments to China have risen from three million tons in 1995 to four million in 1997.

Construction of the railway linking Hunchun of northeast China's Jilin Province and the Russian city of Mahalino is going on rapidly and both sides have agreed to start joint international transportation on July 1st. The operation of the Sino-Russian railway and the completion of other auxiliary facilities will help form a triangular rail network along the lower reaches of the Tumen River. This network will connect China, the Democratic People's Republic of Korea (DPRK) and Russia and hopefully create a better investment environment in the region.

Rus-India Producing Fighter Jets

· A representative of Hindustan Aeronautics Ltd. (HAL) said Russia and India are expected to sign an accord by June on licensed production of Russian multi-mission Sukhoi Su-30 fighter jets at Indian factories. Nasike factories of HAL, India's major, are preparing capacities to manufacture Su-30s. The first Indian-made Sukhoi is expected to take-off four years after the signing of the contract. Talks on licensed production were held in February at the Indian Defense Ministry by a delegation of the Irkutsk Aircraft Association. The Irkutsk Aircraft Association has opened an office in India in hopes of setting up a service and maintenance center for Su-30s.

Rus-German Sign Uranium Contract

· On Monday, the Russian government approved and Russian Prime Minister Viktor CHERNOMYRDIN signed a draft agreement to provide highly-enriched uranium for a nuclear research reactor to Germany. Russia will supply up to 1,200 kilograms of uranium enriched over 90 percent with the uranium-235 isotope, including the first batch of up to 400 kilograms. The batch is intended for the produc

tion of heat-emitting elements for the nuclear research reactor Muenchen-2 for the its entire life. The Russian government resolution says that Russia does not object to the manufacture by Germany in France or Britain of the heat-emitting elements from Russian material. The used nuclear fuel can subsequently be treated in Russia, Germany or a third country on mutual agreement between the parties concerned. The draft agreement stresses the FRG guarantee that the material received from Russia and the nuclear and non-nuclear materials produced on its basis will not be used to manufacture nuclear weapons and other nuclear explosive devices or for the purpose of reaching any military objective. The Russian uranium will be placed under control of the International Atomic Energy Agency throughout its life and use. Specific terms and conditions of the Russian deliveries of uranium to Germany will be the subject of separate individual contracts to be signed between the Russian Tekhsnabexport Co. and the German firm Nuchem. The agreement is expected to be in effect for ten years.

European Republics

Ukraine to Restrict Gas Consumption

· The Ukrainian government today announced plans to put restrictions on the consumption of gas by the population, the communal services, and budget-financed institutions. A document regulating the fixing of maximum gas consumption levels has already been drafted, a spokesman for the Ministry of the Oil and Gas Industry. Special groups will be instructed to start checking gas and electricity bills in various parts of Ukraine. The Ukrainian government had to take that step because of the ineffectiveness of measures for detecting the debtors. Regional enterprises and budget-financed institutions owe gas suppliers some 6.5 billion gryvnias (about $3.25 billion). The regions have not yet made lists of gas consumers, who should receive gas at reduced prices. This is one of the reasons for the excessive gas consumption and non-payments. A maximum amount of "reduced-price" gas to be consumed by the population and budget-financed institutions has been set for all the regions. Regional administrations will be held responsible for the observance of the quotas and for the timely payment of gas bills. Ukraine consumed 7.6 billion cubic meters of gas in January and February of 1998, costing $500 million.

When you need to know it as it happens

Politics-Economics-Business

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Tuesday

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A little more than 10 percent of the sum has been paid. Industrial enterprises receive gas at free prices. At the same time, the government fixed a far lower price for the population and budget-financed institutions at $66 per 1,000 cubic meters. That price is formed thanks to Ukrainian domestic gas production and the gas, received in payment for the transit of Russian gas.

South Caucasus & Central Asia

Georgia Signs Major Pipeline Agreement

· Chevron Overseas, Britain's Caspian TransCo., and the Georgian state oil company Gruzneftproduct signed an agreement in Tblisi on Monday to reconstruct two sections of the export pipeline transporting Azerbaijan Caspian oil to Georgia's Black Sea coast. Financial terms of the agreement were not disclosed. The agreement gives Chevron and Caspian TransCo. the right to use and operate Georgian oil transportation facilities from Khashuri to Batumi. Work on the Khashuri-Batumi section will begin within four months, and that section will be linked to the Ali-Bayramli-Khashuri pipeline by mid-1999. The annual throughput capacity of the Ali-Bayramli-Batumi pipeline will be 7.5 to 8 million metric tons, according to Chevron President Richard MATZKE. Speaking at the signing ceremony, MATZKE said that the project is an realization of Georgian President Eduard SHEVARDNADZE's idea to create a Euro-Asian transport corridor, emphasizing its international significance. The pipeline will transport not only Azerbaijan crude but some Kazakh oil from the Tengiz field that Chevron is developing together with Mobil and Kazakh and Russian oil companies. Chevron reports that more than 1 million metric tons of Tengiz oil have been exported by tanker to Baku and then by rail through Georgia since 1997.

Turkey's Coast Guard Chief Visits Georgia

· Turkey's Coastal Guard chief Alfer TEZIR is expected to arrive in Georgia today for a three-day working visit to discuss interaction in protection of territorial waters and technical aid to Georgian coastal

guards. TEZIR will meet with Georgia's border guard leadership, which has announced Georgia's intention to take control of its coast before the end of the year. Turkey has already donated one coastal defense craft to Georgia. US foreign aid has committed approximately $7 million to assist Georgian border guard and training infrastructure in fiscal 1998. It is unclear, however, whether a recent border incident involving both states will be discussed. On Friday, a long sub-machine-gun burst was fired from the Turkish side at the 17th post of the Batumi border unit, which belongs to Russia's border forces in the Caucasus. No casualties among the post's border troops were reported. Under a Russian-Georgian agreement, the army group Gruzia from the Caucasian border district participates in protecting the Georgian border. Russian Defense Minister Igor SERGEYEV is considering the withdrawal of Russian troops from Georgia, if there is a consensus that Russian military bases are no longer needed.

Kazakhstan Turns Over Assets To COPC

· Kazakhstan has completed turning over its assets to the Caspian Oil Pipeline Consortium (COPC), which had been established by Russia and Kazakhstan together with the Sultan of Oman, and ten transnational oil companies for the transportation of oil produced in Kazakhstan to the world market. General Director of the COPC-Kazakhstan joint-stock company Lyazzat KIINOV said the assets comprise pipelines, with an estimated value of $232 million. KIINOV said Russia has already turned over its pipelines, estimated at $292 million. The overall length of the pipeline system which will stretch to the oil terminals on the Black Sea coast near Novorossiisk, will be 1,500 kilometers to be completed by the year 2000. The huge pipeline transportation system will cost COPC $2,200-2,500 million. Kazakhstan's equity share in the pipeline system is 19 percent, Russia holds 24 percent, and the Sultan of Oman 7 percent. The remaining 50 percent are to be divided among the oil companies of other countries on condition that they will finance the pipeline transportation system section to Novorossiisk.

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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