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

Monday, March 30, 1998

is a, "courageous step which should be noted." He said that CHERNOMYRDIN, "is showing qualities of which we did not know earlier." Chairman of the Federation of Trade Unions of the Kemerovo Region Anatoli CHEKIS said, "If Viktor CHERNOMYRDIN remained in the government, negative consequences of reforms would influence negatively his prestige." Leader of Union of Kaliningrad Democratic Forces Nikolai TULAYEV believes that CHERNOMYRDIN, "has the potential to be regarded as a presidential candidate but on one condition: if he builds the election bloc on a broad coalition." The Our Home is Russia movement by itself cannot be a sufficient support, he said. Vladimir ZHIRINOVSHY, leader of the third biggest faction in the Russian State Duma LDPR, has backed CHERNOMYRDIN's initiative to run for Russian presidency in the year 2000. ZHIRINOVSKY noted that CHERNOMYRDIN will win if he forges an alliance with him and Moscow Mayor Yuri LUZHKOV. "We have to agree on the whole: he is the president, LUZHKOV is the Prime Minister and I am first vice-Prime Minister. We will agree...It would be a good alliance of the three," he said. Gazprom's financial advisor Andrei VAVILOV believes, "CHERNOMYRDIN to be the most deserving candidate," and assessed his chances of winning very high.

A poll in Moscow following CHER-NOMYRDIN's announcement revealed that, the bulk of voters are undecided in their vote for President. Half of those polled said CHERNOMYRDIN will have good chances in

Russian Federation

Politics

Chernomyrdin To Run For President

· Former Prime Minister Viktor CHERNOMYRDIN in an interview with Russian Public Television (ORT) on Saturday announced that he intends to run in the presidential elections in 2000. Meanwhile, President Boris YELTSIN announced that he would not seek a third term as President, but stop short of appointing CHERNOMYRDIN his chosen successor. YELTSIN said choosing a successor, "is not just done here...In our country people elect leaders, and every citizen has a right to run for presidency under the Constitution." According to CHERNOMYRDIN, YELTSIN was aware of his decision to run and that he "understood" that YELTSIN agreed with his plans. CHERNOMYRDIN remains an ally of YELTSIN's, "too much has kept [us] together in these difficult years," CHERNOMYRDIN said.

CHERNOMYRDIN said that he is ready to run the country because he, "know[s] both what needs to be done and how it should be done." He said, "As for my attitude towards power in general, it will depend on the situation in the country. I am not bound by anything and I am not going to remain in shadow." CHERNOMYRDIN noted that a dissolution of the Duma, if it rejects the president's nominee for Prime Minister, would mean that 1998 would be, "a lost year" for Russia. Assessing the government's performance during his six years, CHERNOMYRDIN said that "the tracks" have been laid and now, "we need mechanisms" and a "knowing driver."

CHERNOMYRDIN's announcement has received support from a wide range of politicians and businessmen including GORBACHEV and ZHIRINOVSKY. Ex-Soviet President Mikhail GORBACHEV said CHERNOMYRDIN's announcement

Today's News Highlights

Russia

Stepashin New Interior Minister

Russia Rents From Kazakhstan

Chubais Can't Be UES Chair

Yuksi Out of Rosneft Bidding

European Republics

Ukraine's Elections Fair

South Caucasus & Central Asia

IFC Loans Azeri Banks $1.3M

Rus-Azeri Agree on Capsian

Rus-Tajik Review Military Forces

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March 30, 1998

Intercon's Daily

the forthcoming presidential elections, "if he is backed by regional elite and Russia's leading businesses." A nationwide poll taken by Public Opinion Foundation showed CHERNOMYRDIN with 6 percent support if Presidential elections were held today. Communist Party leader ZYGANOV received 21 percent, LUZHKOV and Yabloko leader YAVLINKSKY 10 percent each and former First Deputy Prime Minister Boris NEMTSOV and former Security Council Secretary LEBED 9 percent each, NTV reported.

Annan Shares UN Priorities With Russia

· Russian Foreign Minister Yevgeny PRIMAKOV and UN Secretary-General Kofi ANNAN opened negotiations in Moscow today to discuss the stepping up of Russia's interaction with the United Nations to enhance effectiveness of its activity, build up the potential in the ensurance of peace, stability and international cooperation. During the talks the sides touched on ways of settling conflicts in "hot spots," both in the territory of the former Soviet Union and all over the world. They also discussed problems of reforming the structure and work of the United Nations, some vital economic themes and other questions of mutual interest. ANNAN also met with Russian President Boris YELTSIN, Moscow Mayor Yuri LUZHKOV, and deputies of the Russian State Duma. ANNAN outlined the UN's immediate objectives to Duma deputies, which include maintaining peace in the Persian Gulf, ending the Arab-Israeli conflict, normalizing the situation in Bosnia, and enhancing peacekeeping missions in CIS trouble spots, such as Georgia and Tajikistan.

After arriving in the Moscow airport, ANNAN admitted that the situation with human rights in Latvia was knotty and complex. In the words of ANNAN's spokesman Fred ECKHARD, the visit to Moscow and capitals of other permanent members of the UN Security Council aims to inform their leaders of the Baghdad agreements with the Iraqi leadership concerning the work of the international commission on Iraqi disarmament and the inspection of presidential sites. Following a visit with the Russian State Duma, ANNAN will leave for a visit to Beijing on March 31-April 1 and then to London on April 3-4.

Yeltsin Appoints Acting Interior Minister

· President Boris YELTSIN signed today a decree to appoint Sergei STEPASHIN to the post of acting Interior Minister of Russia. STEPASHIN held the

post of Justice Minister in the CHERNOMYRDIN government. He also heads the presidential commission for combating political extremism. It is unclear whether STEPASHIN will continue in this position, which was created last fall. STEPASHIN formerly headed the Federal Counter-Intelligence Service, which is now called the Federal Security Service. During the civil war with Chechnya, he was criticized for bungling an operation against Chechen forces using Interior Ministry troops instead of regular army troops. It is unclear whether STEPASHIN will continue to head a presidential commission on battling extremism, which was created last fall. The former head of the Interior Ministry Anatoly KULIKOV was relieved of his duties by a separate presidential decree last week. The duties of Interior Minister were discharged instead of him for one week by former First Deputy Minister General Pavel MASLOV.

Economy

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

Ruble =6,106/$1.00 (CB rate)

Ruble = 6,088|6,124/$1.00 (buy|sell rates)

Russia Rents Defense Space From Kazakhstan

· Russian President Boris YELTSIN on Friday signed federal laws for Russia to rent four military ranges in Kazakhstan's territory: the 929th state test flight center and fourth state central range, Emba and Sary-Shagan ranges. The agreements were negotiated at the government level on January 20, 1995. Russia annually will pay Kazakhstan about $27.5 million, excluding the payment for renting Baikonur cosmodrome for $115 million. There was no payment for renting ranges since 1995 because the agreements were not ratified. Russian military propose mutual settlement of debts between the two countries without subdividing them into military and non-military debts. According to unofficial estimates, Russia's total debt to Kazakhstan by February 1998 totaled $1.8 billion, while Kazakhstan's debt to Russia amounted to $1.2 billion. Missile defense systems are tested in Sary-Shagan range which offers a unique opportunity for any tests in this sphere. There is no equivalent range within Russia.

Business

Chubais Unable To Be Chairman of UES

· Russia's acting Prime Minister Sergei KIRIYENKO

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on Saturday said that since former first Deputy Prime Minister Anatoly CHUBAIS has left public service he, "categorically cannot be chairman of the board of directors of the United Energy System of Russia (UES)." He added that since the government holds 51 percent of UES, "the controlling positions in the board of directors and its chairman should be state representatives." The government has nominated 18 candidates for the board of the directors position. The majority of members of the existent Board were nominated as candidates by the Cypriot Company, which can nominate up to 15 candidates under the rules of the UES. Their candidates include Yegor GAIDAR, Yevgeny YASIN and Pyotr MOSTOVOI. Gazprom, which owns 4.5 percent of the company shares, was modest and nominated only deputy head of the Gazprom Board Pyotr RODIONOV and leader of the Mezhregiongas Company Valentin NIKISHIN. The election of a new board of directors is set for April 4 at the shareholders' meeting. CHUBAIS, however, has a chance to replace Boris BREVNOV as UES chief executive officer. BREVNOV, whom the board of directors recently tried to oust, is also a nominee of the Cypriot Company.

Yuksi Out of Rosneft Bidding

· President of Yuksi, the company formed from the merger of Yukos and Sibneft, Mikhail KHODORKOVSKY today said that Yuksi will not bid in the privatization of Rosneft, the largest state oil company, because the price is too high. He said the government asking price of $2.1 billion, "exceeds the true value of Rosneft by at least $800 million." KHODORKOVSKY did not rule out participation. "If one of the investors wants to bid, we're ready to operate the company because we know it well or we're ready to be a partner, but we won't participate with our money." As Intercon reported last week, controversy still surrounds the other two contenders for Rosneft. Mentatep, part of the Yuksi group said that consortium of LUKoil, Gazprom, and Royal Dutch Shell cannot participate because the state owns 40 percent of Gazprom. The terms of the auction stipulate that only companies and enterprises with a state interest not exceeding 25 percent may participate in the tender. The joint bid of Uneximbank, Sidanko, and British Petroleum also may not be considered because Sidanko has outstanding tax debts on its subsidiaries Angara Petochemical Company. All competitors must not

have any debts to the federal government. With the three major contenders out of the running or under review, the question still remains who will bid on Rosneft. The results of the tender will be announced on May 29th.

European Republics

Communist Winning Ukraine Elections

· Ukraine held parliament and local elections Sunday, with some 65 percent of the 37 million eligible people participating in the voting. Chairman of the Central Electoral Commission (CEC) Mikhail RYABETS said 30 political parties and blocs with a total of 6,452 candidates competed for 450 seats of the parliament. This is the second time for Ukrainians to vote for parliamentary representatives since the country declared independence in 1991. After voting Ukrainian President Leonid KUCHMA, said that he, "is ready to cooperate with any parliament." The first thing the new parliament should do, KUCHMA continued, is to lift deputies' inviolability and start adopting laws of the economic package. He urged voters to support, "competent and decent people who are not inclined towards extremes and who are determined to serve the state honestly and selflessly." Prime Minister Valery PUSTOVOITENKO said that his government is ready to have an effective cooperation with the parliament. According to Ukraine's constitution, half the 450 seats will proportionally go to the parties which gain at least 4 percent of the votes, and the other 225 representatives will be elected directly in the 225 constituencies. Local elections were also held Sunday throughout the country, except in the capital city of Kiev and Sevastopol, a port city in Crimea peninsula. Over 85 percent of voters turned out in Sunday's elections to national legislature in west Ukrainian Rovno, Ternopol, Volynsk and Lvov regions, according to preliminary vote-count results. The turnout was also high, 64 percent, in the peninsular autonomy of Crimea, by contrast to anticipation of the local election commission. Official results of the parliamentary elections will be released on Tuesday. Unofficial sources suggest that the Communist Party has won in the elections with a major lead. Experts predict that communists won in all of Ukraine's regions earning at least 80 of the parliament's 225 seats tipped for parties and electoral blocs. Communists held over 80 seats in the previous parliament which was

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elected through a majority system. It is estimated that 500 international observers from 38 different countries observed and monitored Sunday's parliamentary elections in Ukraine under the auspices of the Ukrainian Electors' Committee.. The international observers who watched the elections told a news conference they were satisfied with the course of the elections.

South Caucasus & Central Asia

IFC Loans Azeri Banks $1.3 Million

· The International Finance Corporation (IFC) on Friday signed loan agreements totaling $1.3 million with three of Azerbaijan's largest private banks: Azerdemiryolbank, Azerigazbank, and Rabitabank. The IFC credit will be used for on-lending to privately owned small and medium sized enterprises (SMEs) to finance business expansions and modernization and for working capital, according to an IFC press release. This is the IFC's first project involving the Azeri banking sector. A total of $3.4 million in IFC funds for SME financing was approved in December 1997 to be extended as medium term loans to private Azeri banks. Manager of IFC's Central and Southern Europe Department Khosrow ZAMANI said that the project is expected to stimulate economic activity in a number of key sectors, including retail and wholesale trade, transport, construction and construction materials sectors, which provide significant employment in Azerbaijan. Azerdemiryolbank is Azerbaijan's largest private commercial bank and is an important local source of financing for the transportation sector. Azerigazbank is primarily active in the wholesale trade, food and transportation sectors. Rabitabank lends to the local telecommunications sector.

Rus.-Azerbaijan Agree on Caspian Sea

· Russia First Deputy Foreign Minister Boris PASTUKHOV and Azerbaijan's President Geidar ALIYEV agree on Friday that the Caspian Sea bed should be divided. The consultations included diplomats, jurists, environmentalists, oil workers and border guards. PASTUKHOV hoped that the division

could be made soon so as to avoid any possible negative effect on investment in the strategic projects in the Sea. Although moving closer to Azerbaijan on the status issue, Russia still holds different position on oil pipeline building. PASTUKHOV noted his country is strongly opposed to any plan to build oil pipelines across the Caspian bed, saying it is equal to a pirate's act harmful to the economy and ecology. ALIYEV said he backed in principle plans to lay oil pipeline across the Caspian bed from Azerbaijan and Turkey to the Mediterranean port of Ceyhan. ALIYEV said the Caspian status was rather complicated but it should be solved without mutual claims but proceeding from international norms and practices. All the five littoral states claim rights to the oil fields and fishing grounds of the inland sea. ALIYEV hopes that the Caspian nations will solve the disputable issues and sign an agreement on the Caspian sea.

Russia and Tajikistan Reviews Situation

· Secretary of the Russian Security Council Andrei KOKOSHIN and a delegation including Director of the Federal Border Guard Service Colonel-General Nikolai BARDYUZHA, Deputy Director of the Foreign Intelligence Service Viktor YERIN, Deputy Director of the Federal Security Service Valentin SOBOLEV, and a team of military and political experts arrived in Dushanbe, Tajikistan today to study the military-political situation in that country and the condition of the Russian military contingent deployed there. The agenda of the visit includes meetings with Tajik President Emomali RAKHMONOV, leaders of the National Reconciliation Commission, and officers from the Russian Border Guard Troops and the Collective Peace-Making Forces, deployed in Tajikistan. KOKOSHIN stressed that international security and economic cooperation can be considered on a multilateral level within the CIS and a bilateral basis. KOKOSHIN will also attend a meeting of the Chief Military Council of the Federal Border Guard Service, which will be chaired by BARDYUZHA in the capacity of FBS Director. Russian diplomatic sources stress that the visit is in no way linked with the latest events in Tajikistan.

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

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