DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

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, April 14, 1998


Russian Federation

Politics

Yeltsin Submits START II Treaty to Duma

· Russian President Boris YELTSIN on Monday resubmitted the START II nuclear weapons treaty for ratification by the Russian State Duma. Although the treaty has been signed by both YELTSIN and US President Bill CLINTON and approved by the US, Russia has never ratified the 1993 treaty, which requires the dismantling of all land-based multiple-warhead missiles. Washington has said it wants the START II ratified before CLINTON's next summit with YELTSIN, but has not yet made it a formal condition for the meeting. In 1997, both sides agreed to a five-year extension to the deadline to cut half of their strategic nuclear arsenals. The original treaty had called for multiple-warhead missile launchers, including silos, bomber aircraft and submarines, to be dismantled by the year 2003. The new agreement requires former Soviet republics with such weapons to follow the same rules. The new treaty does, however, give some leeway to the development of short-range defensive missile systems. Russian parliamentarians claim the cost of nuclear reductions are still too great for its developing budgetary policies and fear US is developing new missile defense systems.

YELTSIN also sent to the Duma the agreement on confidence-building measures with regard to non-strategic Anti-Ballistic Missiles (ABM) systems. The statute on the standing consultative commission, the joint statement on annual exchanges of information concerning non-strategic ABM systems, and the statement by Belarus, Kazakhstan, Russia, Ukraine and the US on their plans in this field are not subject to ratification. These documents are designed to make the ABM Treaty a multifaceted agreement and prevent attempts to circumvent it while creating non-

strategic ABM systems. YELTSIN appointed State Secretary and First Deputy Foreign Minister Igor IVANOV and Chief of the General Staff and First Deputy Defense Minister Anatoly KVASHNIN his official representatives to Duma hearings on the ratification of these documents.

Today, chairman of the Duma committee on international affairs Vladimir LUKIN said the updated START-II version which extends the deadline for arms reduction, "should be ratified without haste, and also without delay." But Duma's Liberal Democrats are opposed to the ratification of the START-II treaty. Chairman of the committee on geopolitics Aleksei MITROFANOV stated he favored a further increase in the number of Russia's missile. "We should produce more missiles and place them all over," MITROFANOV said.

Duma Speaker Endorses Kiriyenko As Premier

· Russian State Duma Speaker and Communist Party member Gennady SELEZNYOV after meeting with President YELTSIN today said that the Duma should confirm Sergei KIRIYENKO as Prime Minister. "I consider that the destiny of Russia is more precious than KIRIYENKO's future. The State Duma should have a chance to work until the expiration of the Constitution-prescribed term," SELEZNYOV said. During the meeting, YELTSIN stated that he insists on KIRIYENKO and remarked that, "the parliamentarians should not have believed that the country should be administered by pension-aged

Today's News Highlights

Russia

Russia Stops Iran Tech Transfer

Interior Ministry To Be Reformed

New Chechen Energy Advisor

Palladium Reaches 18 Year High

European Republics

Energy Min. For Debt Revision

South Caucasus & Central Asia

Baku-Suspa Pipeline Delayed

Kazakh President On G-4 Union

Azeri-Belgium Sign Bilateral Doc

Politics-Economics-Business

Page


Tuesday

April 14, 1998

Intercon's Daily

people." YELTSIN has instructed KIRIYENKO to hold consultations with the Duma factions before Friday so that the acting Prime Minister could, "answer all the questions." YELTSIN supports KIRIYENKO's decision to not disclose the names of future cabinet members before he is confirmed as Prime Minister.

Meanwhile, the President signed several federal laws on Monday, including an agreement on Russian-Tajikistan Air Service, changes to regulatory acts of the Internal Troops, and conversion of the defense industry.

Russia Stops Iran From Stealing Missile Tech.

· Director of the Russian Center for Political Studies Vladimir ORLOV said that, "At least three cases are known when Iranian state companies tried to get Russian technologies in order to use them for developing their own missiles. However, there were no proven cases of Russian missile technologies and materials being handed over to Iran." According to ORLOV, the Iranians, especially the state-run Sanam Company, attempted to obtain duel-purpose technologies from the Kuznetsov Science and Technology Complex in Samara, the Central Aerohydrodynamics Institute in Zhukovsky, and the Mytishchi Machine-Building Plant. The contacts between the Iranians and the Mytishchi Plant led to the arrest and deportation last November of Iranian citizen Reza TEYMOURI. Russian Nuclear Energy Ministry spokesman Georgi KAUROV denied claims by the Jerusalem Post that Russia delivered two nuclear warheads to Iran in the early 1990's. KAUROV insisted that, "every warhead is accounted for and not a single one has disappeared," RFE/RL reported. ORLOV stressed that Russia is not the only nation to deal with this problem He said that, "The Iranians are very active in the Commonwealth of Independent States (CIS), too."

Interior Ministry To Be Reformed

· Russian President Boris YELTSIN on Monday in the Kremlin met with acting minister of the Interior Sergei STEPASHIN. STEPASHIN informed the President of the proposals on the main aspects of the Interior Ministry's activities and plans to reform its system. The President posed the task of reforming the Interior Ministry system in accordance with contemporary standards, requirements of democratic statehood and Russian national security interests.

Turning the Interior Ministry into an effective agency for combating crime is a top priority. It is necessary to find the optimum ratio between structures subordinated to federal and local authorities. The Interior Ministry's proposals to reform internal troops in the framework of the reform of the country's entire military structure and questions of stepping up interaction of the Interior Ministry with the Federal Security Service, Federal Border Service and Defense Ministry were also discussed.

Acting Russian Prime Minister Sergei KIRIYENKO supports plans of STEPASHIN to reform the Interior Ministry and relegate to other agencies the functions uncharacteristic of the Interior Ministry. Crime is becoming a threat to national security and hinders social and economic reforms, KIRIYENKO said. "Law enforcement bodies have failed to radically change the crime rate in the country," he noted. KIRIYENKO urged ministry workers to drastically raise the efficiency of their work, emphasizing that it should be done without an increase in the staff of policemen, but by establishing ties between police and the population. In the first three months of 1998, 650,000 crimes were committed, which is a 6 percent increase as compared to the first three months of 1997. The number of crimes committed by underage has grown by 6.5 percent.

Maskhadov Appoints New Energy Advisor

· Chechen President Aslan MASKHADOV issued a decree appointing Khozh-Ahmed YARIKHANOV, former president of the Southern Petroleum Company (SPC), as the president's adviser on the fuel and energy. During the civil war, YARIKHANOV was a member of the State Committee for Defense, commanded a volunteer corps detachment, and took an active part in all war-time negotiations between the DUDAYEV supporters and the Federal power bodies of Russia. In 1996, the then Chechen President YANDARBIYEV appointed YARIKHANOV the President of the SPC.

Economy

Ruble = 6,121/$1.00 (NY rate)

Ruble = 6,126/$1.00 (CB rate)

Ruble = 6,107|6,145/$1.00 (buy|sell rates)

Import Duties To Be Cut By 10 Percent?

· An official from the Russian Ministry for Foreign Economic Ties and Trade said that the maximum

When you need to know it as it happens

Politics-Economics-Business

Page


Tuesday

April 14, 1998

Intercon's Daily

rate of Russia's import duties may be reduced to 20 percent from the existing 30 percent by the end of this yea. At present, Russia's import duties vary in the range of up to 30 percent of the customs cost. The rates for raw materials do not exceed 5 percent, for half-finished and completing products range from 5 to 15 percent, and for finished products from 15 to 30 percent. The overall reduction of the tariff protection of the Russian market, down to 15 percent in the year 2000, is to be compensated by a developed system of protection tools in the form of quantitative restrictions and certain types of import duties—special, anti-dumping and compensation, the ministry official said. The duties are expected to change as the competitive strength of Russian-made goods increases. For example, the increased export of finished goods is to entail cuts in the import duties for raw materials and completing products used for their manufacturing.

Palladium Reaches 18 Year High

· The price of palladium has reached an 18 year high of $302 per ounce amid the short supply caused by the absence of 1998 exports from Russia, with no prospect of immediate relief. Political uncertainty in Russia, the world's largest supplier of palladium, has caused the delay of exports as it did last year. In 1997, platinum metal group shipments from Russia were delayed until the second half of the year due to bureaucratic infighting. Palladium is used to make auto catalysts, which clean up car exhaust gases, in dentistry and in electronic components.

Business

Chubais Candidate For UES CEO

· Russia's Deputy Fuel and Energy Minister said today that the candidacy of the dismissed first deputy Prime Minister Anatoly CHUBAIS will be considered among other candidacies for chief executive officer of Russia's Unified Energy System (UES) joint-stock company. According to Viktor KUDRYAVYI, preparations are underway for a first session of the board of directors in the new composition on April 27 or 28th, which will elect the CEO. KUDRYAVYI also said anonymous questionnaires have been circulated among some 80 heads of regional energy systems on the possible candidates for the CEO position. The results of the survey will be reported at the end of the week, he said. KUDRYAVYI also

hinted at another candidate who he said has, "big experience of working in the energy sector in market conditions." He did not reveal the name or the number of candidates to be considered.

European Republics

Energy Min. Urges Debt Restructuring

· The Ukrainian Energy Minister Alexei SHEBERSTOV has called for the restructuring of its debts for Russian gas and the raising tariffs for electricity. He said an anti-crisis energy program had planned since credit indebtedness of Ukraine's energy complex rose to $2.5 billion by the end of the first quarter of 1998, while indebtedness of consumers, rose to $1.8 billion. SHEBERSTOV said that the Energy Ministry had made a detailed analysis of how the Energy Ministry managed to remain afloat over the past three years, which included credits, Russian gas supplies, and stocks of fuel from the state reserves. The ministry survived the winter of 1996-1997, through the introduction of energy bills. "Now the financial noose is so tight that is necessary to look for sources to repay for coal, gas, and fuel oil," SHEBERSTOV said. The Energy Ministry owes for gas $500 million to Ukrgasprom, the same amount to the State Committee for Reserves, and $300 million to trade firms. The debt for coal reached $250 million.

South Caucasus & Central Asia

Georgian Energy Minister Resigns

· Georgian President Eduard SHEVARDNADZE announced in his weekly Monday radio address that he has accepted the resignation of Fuel and Energy Minister David ZUBITASHVILI, who quit last week following accusations of corruption. Head of a parliamentary graft investigation committee Gia BARAMIDZE, said that there was evidence of theft of vast quantities of diesel fuel intended to run the nation's power plants. He noted that corruption was the main reason for Georgia's dire power shortages. Most homes and businesses receive only a few hours of power per day during the winter, however the situation is alleviated in the summer by hydroelectric power stations.

Baku-Suspa Pipeline Delayed

· The opening of the Baku-Suspa pipeline has been delayed until 1999 because a Soviet era pipeline between Azerbaijan and Georgia cannot be repaired

When you need to know it as it happens

Politics-Economics-Business

Page


Tuesday

April 14, 1998

Intercon's Daily

as expected but must be enlarged and replaced. Azerbaijan's state oil company Socar is seeking to enlarge the 20 inch width pipeline to 42 inch. Socar President Rafik ABDULAYEV said the company want to increase the barrel per day quantity six times to 600,000 barrels. The cost of a larger pipeline over 540 miles, estimated to be $590 million instead of $315 million, has triggered an argument as to which nation will pay for the replacement. A meeting between Socar, AIOC, and the consortium, which is led by British Petroleum Co. and is 40 percent owned by US companies, such as Amoco Corporation, to decide contractual matters has been called off indefinitely. The Baku-Suspa route, initially expected to be completed for $260 million, was intended as one of two interim 100,000 barrel per day oil pipelines to tide Azerbaijan over until a large line, Baku-Ceyhan with cost estimated at $2.5 billion, is built. The other interim pipeline goes through Russia to Novorossiisk. Companies, which have already started on the Georgia line, are unsure whether to go forward or wait for a decision to be made. They are continuing work on the project which will not further commit it to a 20 or 42 inch pipe. This standstill is detrimental not only for the consortiums involved, but also for the governments of the nations which support the building of costly multiple lines. As The Journal of Commerce reported, high fixed costs in the Caspian pipeline would condemn the region's oil to a future of poor profitability at a time of sagging world prices. It may take years before demands would justify the Ceyhan pipeline to carry 1 million barrels per day.

Kazakhstan President Hopeful On G-4 Union

· After meeting with Russian President Boris YELTSIN at the Kremlin on Thursday, President of Kazakhstan Nursultan NAZARBAYEV remains confident the integration group of the four Commonwealth countries will accept his plan of ten simple steps towards ordinary people. According to him, the leaders of Russia, Belarus, Kazakhstan and Kyrgyzstan will gather in Moscow on April 28, a day before the summit of the Commonwealth states to approve his plan. NAZARBAYEV proposed a plan

envisages the maximum simplification of procedures of acquisition of citizenship for people in all four countries, free non-visa crossing of the borders of these states on producing a passport of one of the member nations, the cancellation of registration of passports, a "green corridor" on the frontiers, the unimpeded carriage through the borders of all four countries of foreign currency for the amount up to $10,000 and the customs-free carriage of luggage up to 100 kilograms. Regarding the Commonwealth of Independent States (CIS) summit, NAZARBAYEV proposed dicussions on the creation of a single economic space.

Belgium-Azeri Sign Documents

· Azerbaijan President Geidar ALIYEV and Belgian Prime Minister Jean-Luc DEHAENE on Monday signed a joint statement identifying prospects and areas of cooperation between the two countries. ALIYEV welcomed the joint statement as the main political document forming the legal basis for bilateral relations. They also signed a declaration regarding the agreement on the protection of investments between Azerbaijan and the Belgian-Luxembourg Economic Union and the intergovernmental agreement on air transportation. DEHAENE, who noted that Azerbaijan is leading economic reforms in the former Soviet Republics, said that his government will encourage Belgian companies to expand operations in Azerbaijan and invest in its economy. DEHAENE said his country will support Azerbaijan's desire to integrate into European structures and other international organizations. ALIYEV said that Azerbaijan, as an integral part of Europe, intends to participate in all European structures and is taking important steps in this direction. DEHAENE said that Belgium and Azerbaijan have an important geo-strategic location in their respective regions, adding that stability in Azerbaijan is critical not only for the South Caucasus, but for the whole of Europe. DEHAENE stressed his country's willingness to bolster cooperation with these nations, which have a tremendous economic potential and to develop transport communication between Europe and Asia.

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

Politics-Economics-Business


When you need to know it as it happens

Page

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

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.