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

Wednesday, April 1, 1998

Russian Federation

Politics

Yeltsin To Meet With Big Four

· Russian President Boris YELTSIN today invited acting Prime Minister Sergei KIRIYENKO, Russian State Duma speaker Gennady SELEZNYOV and Federation Council speaker Yegor STROYEV for talks Thursday on the government crisis. YELTSIN's invitation appears to be in response to the Duma's demand that it will reject the candidacy of KIRIYENKO for the Prime Minister post unless a meeting is held with YELTSIN. The invitation came less than an hour before the Duma voted 273 to 40 in favor of a resolution calling on President Boris YELTSIN to meet a parliament delegation in "roundtable" talks on the future government and its policies. Duma deputy speaker Vladimir RYZHKOV of Our Home is Russia said, "If consultations are not held, KIRIYENKO will be rejected on Friday." If the parliament rejects KIRIYENKO three times, YELTSIN has threatened to disband it, in accordance with the constitution. The Duma and the Federation Council agree that there is a, "need for the account of the Russian government on the implementation of the federal budget of 1997 and on the socio-economic situation of the country at a sitting of the State Duma in April of 1998." After a volley of demands between the Duma and the President, YELTSIN's invitation may be the beginning of constructive cooperation.

Energy Min. From G-7 Nations Plus Russia Meet

· The energy ministers of Group of Seven nations and Russia today are meeting in Moscow to consider the insurance of the stability of the production, processing and transportation of energy resources, the creation of favorable conditions for the establishment of wide international cooperation in the energy sphere. The conference is viewed by experts as an important stage in preparations for a G-8 summit,

due to be held in Birmingham, Britain in the second half of May 1998. The Russian delegation includes acting Prime Minister Sergei KIRIYENKO, acting First Deputy Prime Minister Boris NEMTSOV and acting Minister for Fuel and Energy Viktor OTT. KIRIYENKO, formerly fuel and energy minister, opened the meeting calling for an integrated energy system and energy export network in Europe and neighboring regions. He laid out Russia's long-term energy policy, saying that it envisions, "expansion of international mutually beneficial cooperation in developing fuel and energy resources, improving the effectiveness of their use and expansion of their markets." KIRIYENKO stressed that the fuel and energy sector is the keystone to the new program of growth for the Russian economy which the government is forming. KIRIYENKO promised the government's support and encouragement to foreign capital invested in the Russian fuel and energy industry. He called on the meeting to discuss investment policies of Group of Seven most industrialized states towards Russia, and prospects and terms of Western investment in the Russian fuel and energy sector. "We openly and honestly compete in our markets, but one would like the same conditions to exist for Russia in markets of partner countries," KIRIYENKO said. Russia's major problem is creating favorable conditions for companies considering investment in the Russian economy, in particular in the fuel and energy sector. US Energy Secretary Federico PENA expressed hope that the appointment of KIRI-YENKO to the

Today's News Highlights

Russia

Greece-Rus. Discuss Security

Dubinin Tinkers With Ruble

Rosneft's High Price to Remain

European Republics

Latvia Predicts Sanction's Harm

Kuchma To Continue Reforms

South Caucasus & Central Asia

New Pres.Impacts NK Peace

Baku-Novorossiik Capacity Up

Caspian Sea Status Discussed

Politics-Economics-Business

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Wednesday

April 1, 1998

Intercon's Daily

post of Prime Minister will help settle several problems, interfering with the growth of foreign investments in the Russian power industry. PENA believes growth of investments in the Russian energy sector by drafting new agreements on product sharing and changes in tax legislation will be among the main items on the agenda of the Moscow conference. PENA is the first high-ranking member of the US administration to meet KIRIYENKO.

The energy conference was preceded by a conference of G-8 entrepreneurs in Moscow attended by NEMTSOV and representatives of G-8 major oil and gas companies. "Of absolute priority to us are three principles in the energy field: development of competition, equal access and safety. I think these principles will be developed further regardless of who handles the energy sector in Russia and what is the membership of the Russian government. These principles have been prompted by life itself and tested by numerous world examples," he said.

Rus-US Sign Atomic Energy Agreements

· Russia and the United States Tuesday signed two agreements to strengthen cooperation in using and managing atomic energy. The agreements are to cooperate on the development and transformation of production in atomic energy industry cities and in the use of plutonium removed from atomic energy installations. Russian Atomic Energy Minister Yevgeny ADAMOV and US Energy Secretary Federico PENA discussed over 10 items in the bilateral cooperation, including the most acute problem of nuclear contracts on the supplies of 500 tons of uranium from dismantled nuclear armaments to the US within 20 years. ADAMOV proposed the creation of a Russian-American center of ecological security to tackle ecological problems related to the creation of nuclear armaments. He also gave PENA a document produced by Russian experts on the massive development of atomic energy industry.

UES Offered UNIPEDE Permanent Membership

· The Unified Energy Systems (UES) has been invited to become a permanent member of the International Union of Producers and Distributors of Electrical Energy (UNIPEDE), according to the company's press service. The company is a corresponding member of the international organization. The proposal was made by the UNIPEDE president at a meeting with the company heads on Tuesday.

The meeting was held during the forum of G-8 energy ministers and consultations of businessmen, which was attended by the general secretary of the Euroelectric association and the executive secretary of the Union for the Coordination of the Production and Transport of Electric Power. The foreign guests informed the company heads of principles of the European policy on electricity and the transition from monopoly principles to market ones.

Greece-Russia Discuss European Security

· Greek National Defense Minister Apostolos TSOCHATZOPOULOS met with Russian President Boris YELTSIN, Russian State Duma speaker Gennady SELEZNYOV and acting Defense Minister Igor SERGEYEV during his three day visit to Moscow. SERGEYEV and TSOCHATZOPOULOS are expected to discuss European security, the Balkan situation and security in the eastern Mediterranean region, as well as military-technical cooperation. Greece is interested in purchasing Russian armaments, primarily S-300 anti-aircraft missile systems and warships. The newspaper Kathimerini reported that by purchasing these armaments the Greek government hopes to maintain political balance between Europe, the United States, and Russia. Russia and the US are competing for the contract with Greece for air-defense, either S-300 or Patriot, systems. A group of Rosvooruzheniye arms-exporting company experts also worked in Athens, conducting negotiations on prospects for the sale of short-range anti-aircraft missile systems Osa to Greece. SELEZNYOV noted that relations between Russia and Greece, including interparliamentary relations, are rapidly developing. The speaker said that the Russian delegation at meetings of the Parliamentary Assembly of Black Sea Economic Cooperation urged Turkey to lift discriminatory measures obstructing Russian tankers passage through the straits, noting that Greece backed Russian on many matters. In his meeting with TSOCHATZOPOULOS, YELTSIN stressed that the delivery of Russian SS-300 missiles to Cyprus will continue as scheduled.

Economy

Ruble = 6,108/$1.00 (NY rate)

Ruble = 6.110/$1.00 (CB rate)

Ruble = 6.091|6.129/$1.00 (buy|sell rates)

When you need to know it as it happens

Politics-Economics-Business

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Wednesday

April 1, 1998

Intercon's Daily

Dubinin Urges Devaluation of Ruble

· Central Bank (CB)Chairman Sergei DUBININ said that the Russian ruble must be gently devalued in line with inflation to help Russia's exporters compete worldwide. Russia is concerned with its balance of trade, which is being eroded by the ruble's appreciation in real terms. DUBININ said the real appreciation of the ruble was good for foreign investors, but hurt Russia's exporters. "The decline of the ruble against the dollar is proceeding more slowly than inflation," the Financial Times reported. In order to balance things, DUBININ plans to speed up the ruble depreciation in line with inflation. Comment: DUBININ's tinkering with Russia's economy may not be well timed. After Russian President Boris YELTSIN's dismissal of the government and his appointment of Sergei KIRIYENKO as Prime Minister facing opposition by the parliament, the CB has emerged as a stable force in Russia. Maintaining a stable ruble is one of the tenants of Russian policy as set forth by YELTSIN in his State of the Nation address. The ruble is allowed to float between 5.25 to 7.15 rubles to the dollar. DUBININ said, "Any veering from the limits of the announced currency corridor is out of question." It is still unclear when a devaluation may occur. The question remains will Russia's economy be able to handle fluctuation in the ruble?

Business

Rosneft's High Price Tag To Remain

· Acting first vice- premier Boris NEMTSOV announced that the Russian government will not change the initial price of Rosneft shares and that it will not negotiate with bidders. His statement comes in response to Gazprom and Yuski's executives, who believe the asking price for 75 plus one percent stake of Rosneft is too high. The initial price of the shares is $2.1 billion, which makes $2.5 billions with due account of $400 million worth of investments. "I understand Rem VYAKHIREV [Gazprom President]. He is a businessman, and when it comes to paying money a discussion starts. He wants to pay less, we want to get more," NEMTSOV said. He added, "Let's discuss, but bargaining is out of the question. If you do not want it then do not take part...We cannot give away the company." Acting minister of state property Farit GAZIZULLIN has confirmed the government's determination to keep the initial price unchanged. GAZIZULLIN is confident the tender will be held and the state will get the money it wants. "Even if

someone convinces others not to take part in the Rosneft contest, we will find a way to get money from the privatization of the share parcel, probably, in some other way but fully," GAZIZULLIN said.

European Republics

Latvia Predicts Harm of Russian Sanctions

· The Latvian government has predicted how possible Russian trade sanctions would affect their economy. Russia threatened to implement sanctions against Latvia due to the harsh treatment of Russian pensioners during a protest in March. Bizness I Baltiya quoted ministry officials as saying that sanctions could lead to a 50 to 70 percent fall in trade with Latvia's largest trade partner Russia. In 1997, Russia accounted for 21 percent of Latvia's 971 million lats ($1.65 billion) of exports and 15.6 percent of the 1.58 billion lats ($2.7 billion) of imports. Neatkariga Rita Avize newspaper reported that sanctions could lead to the loss of 4,000 jobs in the food industry and 4,300 in textiles.

Meanwhile, a Russian parliamentary committee backed the idea to use diplomatic, political and economic sanctions against Latvia because of human rights violations in the republic. Chairman of the Duma committee on foreign affairs Vladimir LUKIN said that the committee reviewed the situation and that legal endorsement of sanctions against Latvia would be premature. He noted such a move would limit the opportunity to choose from the optimal and most effective measures to influence Latvia. Aside from that, it may have a negative influence on Russia's efforts to ensure the lifting of sanctions against Yugoslavia, Iraq, Libya and prevent the introduction of sanctions against Belarus.

Kuchma Vows to Continue Reforms

· The Communist Party has won more seats than any other party with 84 seats won in the party list system and 37 in single constituencies, totaling 121. This amount even with potential alliances falls short of 226 seats needed for a majority. The Socialist Party won a total of 36 seats, Progressive Socialist Party 16 seats, Rukh Party 32 seats, Green Party 19 seats, People's Democratic Party led by Prime Minister Valery PUSTOVOYTENKO 17 seats, Gromada Party headed by former Premier Pavlo LAZARENKO 16 seats, and Social Democratic Party led by former President Leonid KRAVCHUK 14 seats. Ukrainian

When you need to know it as it happens

Politics-Economics-Business

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Wednesday

April 1, 1998

Intercon's Daily

President Leonid KUCHMA has pledged to continue with Ukraine's reform programs despite remarks by the Communist Party leader. KUCHMA commented that, "despite the election results there will be no going back. Ukraine will pursue its reformist policy while cooperating with the parliament." In his view, the Ukraine's new parliament will not be worse than the previous one. Following a meeting with Finnish President Martti AHTISAARI, KUCHMA added that Ukraine will maintain its domestic and foreign policies after the elections.

South Caucasus & Central Asia

Armenian President To Change Peace Process

· With more than 95 percent of the vote counted, Central Elections Commission's preliminary results show hard-liner Prime Minister Robert KOCHARYAN has won 60 percent of the vote, while former Soviet Communist Party leader Karen DEMIRCHYAN polled 40 percent. Turnout in this run-off early Presidential election was 50 percent. International observers noted a few irregularities. "In several instances, there is sufficient indication of vote fraud to require further investigation and possible criminal charges," according to a statement. However, these cases were not enough to affect the election. KOCHARYAN's uncompromising stand in negotiations with Azerbaijan over the fate of his native region of Nagorno-Karabakh may rule out an early settlement. Karabakh's Christian Armenians have been trying since 1988 to break away from Moslem Azerbaijan. An estimated 35,000 died in the fighting before the 1994 cease-fire, which left Armenians in control of the region. KOCHARYAN has said that he wants to change the structure of peace talks brokered by the United States, France, and Russia, under the guise of the Organization for Security and Cooperation in Europe. He also refuses to consider any deal that would leave Karabakh with Azerbaijan. It is this compromise along with pressure form KOCHARYAN and other government officials which forced the former President Levon TER-PETROSYAN to resign. KOCHARYAN will also

have to confront the hardships Armenians have faced as a result of the conflict over Nagorno-Karabakh, the economic collapse due to the break-up of the Soviet Union, and the impact of embargoes imposed by Azerbaijan and Turkey.

Russia To Increase Baku-Novorossiik Capacity

· Russian First Deputy Foreign Minister Boris PASTUKHOV told Azerbaijan President Geidar ALIYEV on Friday that Russia plans to increase the annual capacity of the Baku-Novorossiisk oil pipeline to 17 million tons. PASTUKHOV said Russia is ready to invest in the construction of a pipeline to bypass Chechnya and bring the annual capacity of the pipeline to 30 million tons. Azerbaijan President noted, however, the Baku-Novorossiisk route cannot replace the main export pipeline from Azerbaijan to Ceyhan, the Turkish Mediterranean coast, which is under consideration. A number of Western companies, who are taking part in the development of Caspian, Kazakh and Turkmen oil deposits, are interested in the main pipeline. They are ready to invest in the construction of two pipelines on seabed to transport oil and gas of the coastal countries to Turkey via Azerbaijan and Georgia. ALIYEV said the annual capacity of the main export pipeline should be no less than 70 million.

Azeri-Turkmen Discuss Caspian Sea Status

· Turkmenistan and Azerbaijan continued talks on the status of the Caspian Sea in Baku on Monday. A Turkmen delegation led by Foreign Minister Boris SHIKHMURADOV and Azeri Foreign Minister Tofik ZULFUGAROV agreed that littoral states on the Caspian Sea had exclusive rights to natural resources in their corresponding sectors of the sea. SHIKHMURADOV said, "We only want a recognition of our rights in the Caspian without detriment to other littoral states," he said. SHIKHMURADOV said the two sides should step back from immediate profits and act with prospect in mind. The two ministers also stated that under the legal agreement the sea should be used for peaceful means and the ecology of the sea should be protected.

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

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