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

Friday, March 6, 1998

own reorganization. An outside and a lengthy impetus is need in this case." CHERNOMYRDIN claimed that the work of the forum should be concentrated on tackling two key problems. First, ways of deepening integration processes in the Commonwealth. Second, its organizational restructuring. It is expedient to submit for the consideration of the heads of state precisely these two strategic questions.

Chubais Blasts Crony Capitalism

· After keeping a low profile following the privatization book scandal last August, First Deputy Prime Minister Anatoly CHUBAIS launched a counter-attack against his powerful rivals blasting "crony capitalism" and calling for a separation of government and business. "We have to drag ourselves out of this relationship by our hair," The Financial Times reported. Referring to the Asian financial crisis, he said Russia would face, "a collapse worse than in South Korea" if his rivals had their way. He said a handful of powerful businessmen have been trying to use their influence to control the state. CHUBAIS said the state must hit back by collecting taxes, regulating monopolies, fighting corruption, and strengthening the independence of the judiciary. "These are basic functions of the state. Yet the structure we have at present is either half-rotten or underdeveloped. CHUBAIS's comments are directed at Russian tycoon, automobile and media giant Boris BEREZOVSKY and Media Most group's Vladimir GUSINSKY. BEREZOVSKY led an attack against CHUBAIS calling him hypocritical

Russian Federation

Politics

CIS Council Approves 11 Documents

· A session of the Commonwealth of Independent States (CIS) Council of Heads of Government ended in Moscow today resulting in the signing of 11 documents. The package of documents included the convention on transnational corporations, a common agrarian market and procedure for mutual fulfillment of resolutions of economic courts and courts of arbitration, procedure for the stay and cooperation of officers of law enforcement agencies on the CIS member states territory, turning over convicted persons for further serving prison terms, regulations on the CIS Charter, the development of military cooperation in the period ending in 2001, cooperation in the training of military personnel, cooperation in the interests of control over the armed forces, curbing offenses in the sphere of intellectual property and illegal migration. Some prime ministers did not sign the whole package of documents, leaving out two or three agreements or expressing their special opinion on the essence of the documents. Specifically, Georgia did not sign the resolution on a program of the development of military cooperation between the CIS member states.

One of the main tasks is to hammer out ways of development and strengthening of a free trade zone, stage-by-stage formation of common economic space of the Commonwealth in order to create conditions for free movement of goods, services, capital and labor. Speaking at the meeting, Russian Prime Minister Viktor CHERNOMYRDIN said: "we should fully use the experience of the European Union and other interstate organizations of integration type. Incidentally, international experience suggests that executive structures of integration associations can, far from always, suggest optimum schemes of their

Today's News Highlights

Russia

PM Stresses Terrorist Prevention

Ruble Chart

Terminal Contract Awarded

European Republics

Kiev Pulls Out of Iranian Plant

South Caucasus & Central Asia

Mission in Abkhazia Statement

Turkmen- Iranian Oil Swap

New Azeri Foreign Minister

Armenia Rejects Election Amend

Politics-Economics-Business

Page

Friday

March 6, 1998

Intercon's Daily

following the controversial sale of Svyazinvest, which went to BEREZOVSKY's rival Vladimir POTANIN of Uneximbank. BEREZOVSKY believes that CHUBAIS's time has past and that, "Businessmen must strengthen their role in government." CHUBAIS further denounced moves by his rivals to dig up compromising information on him, even dating back to his childhood, through phone tapping and offering bribes to family friends.

Summary of Nemtsov's Germany Visit

· Russian First Deputy Prime Minister Boris NEMTSOV concluded his visit to Germany by meeting Chancellor Helmut KOHL, Foreign Minister Klaus KINKEL and other prominent politicians and leaders. During his visit, NEMTSOV prepared for a visit by Russian President Boris YELTSIN to Germany next June and of the Russian-French-German summit in Yekaterinburg, scheduled for March 25-26. NEMTSOV and the German Finance Ministry discussed bilateral trade and economic contacts. NEMTSOV underlined that an understanding was reached with KINKEL to raise, in the near future, the question on recognizing Russia as a country with a market economy so as, "to lift disgraceful anti-dumping sanctions from Russian producers." He stressed that a priority, "of the Russian government at present is the work on attracting foreign capital into Russia." He said the government is seeking a way to make conditions in Russia favorable to foreign companies interested in Russian markets. Out of numerous issues of the economic package, discussed during the visit, NEMTSOV singled out the problem of investments of German car makers in Russia. According to him, KOHL, "displayed interest in KAMAZ" where the German chancellor had visited. NEMTSOV met at the Russian Embassy in Bonn Russian economic managers who are being trained in Germany.

During the talks with the German Foreign Ministry the parties also discussed a broad range of international issues, including the situation in Iraq and the autonomous province of Kosovo, Yugoslavia. NEMTSOV noted that he had discussed with KINKEL a, "complex and unresolved problem" of Russia's property in the former German Democratic Republic. This involves the building of the embassy, Russian House of science and culture, and a number of other projects. NEMTSOV expects YELTSIN to resolve these disputes during his June visit. KINKEL pointed

out that the, "main direction of the German policy with respect to the Russian Federation is integration....Russia must occupy a worthy place in Europe corresponding to its importance, the size of its territory and economic potential."

Chernomyrdin Stresses Terrorist Prevention

· Russian Prime Minister Viktor CHERNOMYRDIN Wednesday on the 80th anniversary of the Federal Security Service (FSB) urged senior security officers to concentrate efforts on preventing terrorism in 1998. "I would not belittle the courage and heroism of FSB officers working in this field. But nevertheless I am forced to state that a series of terrorist acts that resulted in a loss of life were not prevented. He called for "reforming" work patterns in this area and bettering interaction with other power agencies. CHERNOMYRDIN said, "Security of the state, i.e. of its citizens, and safety of economic transactions and the Russian business, are most vital components of Russia's future growth and sustainable development." FSB Director Nikolai KOVALYOV said the service had, "exposed more than 400 agents of foreign intelligence services and arrested eight spies working for the US, Saudi Arabia, Iran, China, and other countries." He called for action to be taken against economic crimes in order to protect foreign investors from bandits.

Economy

Ruble = 6,079/$1.00 (NY rate)

Ruble = 6,081/$1.00 (CB rate)

Ruble = 6,057|6,105/$1.00 (buy|sell rates)

Oct Nov Dec Jan Feb Mar

When you need to know it as it happens

Politics-Economics-Business

Page

Friday

March 6, 1998

Intercon's Daily

CIS Industrial Growth Figures for January

· Russia's January industrial growth was in the sixth place and the inflation rate in the fourth place among Commonwealth of Independent States (CIS) member countries. CIS Inter-state Statistics Committee on Thursday stated that Belarus, Tajikistan and Kyrgyzstan were the leaders with their growth in January in the CIS. Kyrgyzstan's industrial output has grown in January 82.5 percent compared to January 1997, Belarus increased 11.7 percent and Tajikistan increased 10.2 percent. The industrial output increment reached 8.5 percent in Kazakhstan, 6.7 percent in Moldavia, 1.5 percent in Russia, 0.9 percent in Armenia, and 0.8 percent in Ukraine and Azerbaijan. Georgia's industrial output declined 17.3 percent in January of 1998 as compared to January 1997. Production statistics of Turkmenistan and Uzbekistan were not available. Consumer prices in January increased from December's figures in Belarus and Kyrgyzstan, by 3.9 and 2.4 percent respectively. The inflation rate in Kazakhstan was 1.8 percent; 1.5 percent in Russia; 1.3 percent in Ukraine and Moldavia; and one percent in Tajikistan. The inflation rate was 0.7 percent in Azerbaijan and 0.3 percent in Georgia. Inflation data of Armenia, Turkmenistan and Uzbekistan were not available.

Business

Int'l Consortium Wins Terminal Contract

· A consortium of German and Russian companies on Wednesday won a $75 million contract to build a new passenger terminal at Moscow's dilapidated and outdated Domodedovo airport, The Financial Times reported. The airport, built in 1964, is a base for Russia's ZAO East Line airline which has invested $171.3 million in upgrading cargo facilities and handling. East Line awarded the passenger terminal contract to a consortium comprising Hochtief Lahmeyer International of Germany, ABB of Switzerland, and two Russian companies. The first part of the new terminal is scheduled for completion by the end of 1999. East Line expects a rapid rise in passenger traffic following a surge in airtravel in recent years and growth of 7 percent at Moscow's four airport last year. The upgrade facility is projected to handle 1.5 million passengers a year. Domodedovo airport handles 45 percent of Moscow's airports' cargo volume and East Line is building a $14 million addition to the cargo terminal to add a further 800 tons of capacity.

European Republics

Ukraine Withdraws From Iranian Nuclear Plant

· Ukrainian Foreign Minister Gennady UDOVENKO and US Secretary of State Madeleine ALBRIGHT said in a joint statement that Ukraine will not participate with Russia in the building of a nuclear power station in Bushehr, Iran. Ukraine will not supply the turbines needed for the project. The Russian Ministry of Atomic Energy spokesman responded that, "Ukraine is one of the subcontractors and, as such, can be easily be replaced with another."

ALBRIGHT said the US remains Ukraine's strategic partner. She stressed, however, that the US is interested in having an independent, safe and flourishing Ukraine as a partner. She also emphasized positive changes in Ukraine, such as freedom of speech, religion and assembly are needed. She mentioned corruption as a negative trend in the country's development, saying the nation must do away with it. She also said Ukraine must improve its business climate for US investors and companies. ALBRIGHT today is scheduled to meet with President Leonid Kuchma, Foreign Minister Gennady UDOVENKO, American business circles in Ukraine as well as Ukraine's politicians.

South Caucasus & Central Asia

Mission of Abkhazia Warns Investors In Georgia

· "Plenipotentiary" for the Republic of Abkhazia in the United States Yanal KAZAN, in a letter to foreign businesses investing in Georgia, has issued warnings that the country is unstable and foreign investments are at risk due to political tensions between Abkhazia and Georgia. He threatens that, "war and hostilities could resume again at any moment...if the Republic of Georgia does not recognize the Republic of Abkhazia's legitimate claims to its territorial integrity." KAZAN states that the Abkhazian government is convinced that Georgia will use its oil revenues to purchase military arms and resume hostilities with Abkhazia. He states that Georgian President Eduard SHEVARDNADZE's, "manipulative tactics and statements regarding the stability of Georgia is an illusion," insinuating that recent events in Georgia have turned the country into chaos. Most disturbingly KAZAN declares that, "At the present time Abkhazia has elements in place ready to implement plans to

When you need to know it as it happens

Politics-Economics-Business

Page

Friday

March 6, 1998

Intercon's Daily

completely disrupt any efforts to install an oil pipeline through Georgian territory. Comment: This type of provocative letter is not only ridiculous, but dangerous as well. Georgia continues to resolve internal conflicts in a peaceful manner and seeks a peaceful settlement to the Abkhazian conflict. The assassination attempt and kidnapping of UN military observers, two linked efforts to ignite internal strife, failed to oust the Georgian President or increase opposition to his democratic achievements and privatization plans. Threats of "elements" and "plans" to disrupt pipeline projects must be taken seriously. However, it is important to consider who would benefit from not having a pipeline through Georgia. Could these beneficiaries be behind the recent attacks and Abkhazia's outrageous accusations? This so called "Plenipotentiary," is assumed to be a US citizen and may have violated criminal statutes relating to terrorism. This is certainly a matter for investigation by appropriate US law enforcement authorities.

Turkmen Plans Oil Swap With Iran

· Turkmenistan has announced plans to swap more than 100 million barrels of oil annually with Iran, reported The Journal of Commerce. A Turkmen official said the nation is negotiating a plan to send crude oil to refineries in northern Iran in exchange for delivery of equal amounts of Iranian oil for export at the Persian Gulf ports. The plan calls for building a pipeline from Turkmenistan to the Tehran refinery. Bridge News said the move is a prelude to a $1.5 billion project for a 750 mile pipeline to the Persian Gulf capable of flowing 1 million barrels a day. This deal dwarfs Iran's existing agreement with Kazakhstan to exchange 14.6 million barrels a year. Kazakhstan last year announced plans for a pipeline to the gulf through Turkmenistan and Iran as part of a $9.5 billion package of investments by China. Turkmenistan's plans with Iran follows a meeting of Caspian and Central Asian countries in Turkey, where participants supported plans for a Baku-Ceyhan pipeline route. The pipeline through Turkey, designed to avoid a less costly Iranian route, is backed by the US. The US so far has not objected

to the swap, but Turkmen President Saparmurat NIYAZOV is likely to be pressured during his visit to the US in April to withdrawal from the swap plan. Turkmenistan's announcement clearly implies that it wants to keep its oil export options open.

New Foreign Minister Appointed In Azerbaijan

· Azerbaijan's President Geidar ALIYEV Thursday signed a decree appointing Tofig ZULFUGAROV to the post of Foreign Minister. ZULFUGAROV was in the post of deputy foreign minister for about three years and led Azerbaijan's delegation to the OSCE-mediated talks with the Nagorno-Karabakh enclave. He is the fourth Foreign Minister of Azerbaijan since its independence. ZULFUGAROV replaces Gasan GASANOV, who was dismissed in the middle of February due to complicity in a scandal over the turning of the Europe hotel intended for the diplomatic corps into a gambling center.

Armenian Parliament Rejects Election Amend.

· The Armenian parliament has rejected a proposal to introduce amendments to the law on the presidential elections. The amendments, suggested by representatives of the Selfdetermination opposition block's Paruir AIRIKYAN and Nerses ZEINALVANDYAN, provided for local observers to watch the elections scheduled for March 16. Organization for Security and Cooperation in Europe (OSCE) representative to the elections Sam BROWN said they regretted that the OSCE proposals on local observers were rejected. In his words, the amendments would have given observers a possibility to be present at polling stations and meetings of electoral commissions as well as monitor the poll and vote count. A preliminary condition for the development of any democratic society is a just election process, the OSCE representative said. Acting President, and candidate Prime Minister KONCHARYAN has pledged to hold a "free and fair" election. BROWN urged the Armenian parliament to pass corresponding amendments and give unbiased local observers a chance to freely take part in the elections. There is still enough time to do that, he stressed.

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

Politics-Economics-Business

Page