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

Friday, April 17, 1998

Russian Federation

Politics

Duma Rejects Kiriyenko In Second Vote

· In an open vote today, the Russian State Duma rejected President Boris YELTSIN's candidate Sergei KIRIYENKO for the position of Prime Minister in a vote 271 to 115 with 11 abstentions. KIRIYENKO needed 226 votes to be confirmed. After meeting with several party leaders, lobbying for support, and describing his economic plans, KIRIYENKO received even less support in this second round than he received in the first vote, which was held under a secret ballot format. The secret ballot vote allowed party members to follow their conscience, but with an open vote in the second round members were forced to tow party lines. Communist leader Gennady ZYUGANOV gave a speech to the Duma before the vote calling on the deputies to vote against KIRIYENKO. He said that the Russian people, "have become hostage to a dead constitution and an absolutely incapable President." The Communist party, formed an alliance with the Agrarian party and the People's Power group, which believes KIRIYENKO has, "no program, no clear position and not enough experience." Following today's vote, YELTSIN immediately renominated KIRIYENKO for a third round of voting by the Duma, which will be held next week. If KIRIYENKO fails to gain approval in the third round, YELTSIN has threatened and has the authority to dissolve the Duma, call new parliamentary elections a year early, and appoint who he wants as Prime Minister. In his weekly radio address, YELTSIN reassured the nation that this, "crisis is not a catastrophe," and that, "all the ministries and government institutions are working." Presidential spokesman Sergei YASTRZHEMBSKY said that the President accepted the outcome but, "We expect the third round to bring the result which is necessary for the entire country, and Sergei KIRIYENKO will be con

firmed." Andrei FEDOROV of the Moscow based Council on Foreign and Defense Policy, believes KIRIYENKO's confirmation will be determined by the procedure of the vote next Friday. "If it is a secret ballot, Mr. KIRIYENKO can be confirmed. If it is an open vote, he will not be," FEDOROV told the Financial Times.

Calling early elections for the parliament could be more detrimental to reforms than not having a Prime Minister and Cabinet who are committed to pushing reforms. The Duma on Thursday passed the first reading of the government version's new tax code by a vote of 312 to 17 with one abstention. If YELTSIN dissolves the Duma, he would effectively put the tax code back to square one and a new parliament may not be as favorable. Duma deputies also see the dismissal as undesirable, since they risk losing their parliamentary seats and the perks that go with being a deputy. KIRIYENKO's approval has the momentum to become the greatest showdown between the President and parliament since the clash in 1993.

Yeltsin-Hashimoto To Cement Bilateral Ties

· Russian President Boris YELTSIN will arrive in Japan on Saturday for a two-day informal summit with Japanese Prime Minister Ryutaro HASHIMOTO to promote broader bilateral ties. The focus of the summit will be how HASHIMOTO and YELTSIN can move forward bilateral negotiations so that a peace treaty over the disputed islands off Hokkaido can be signed by 2000. HASHIMOTO is expected to in

Today's News Highlights

Russia

Attack on Russian Convoy

Rus- Japanese Trade Increases

European Republics

Ukraine to Cut Budget Deficit

South Caucasus & Central Asia

Georgia Follows Merrill Lynch

Uzbek-DaewooJV

Kazakh Corp Receives Loan

OSCE Chair Meets Kazakh Pres

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April 17, 1998

Intercon's Daily

form YELTSIN of Tokyo's decision to expand visa-free visits to the islands and humanitarian aid to Russian residents on the islands. Soviet troops seized these islands in the closing days of World War II. The progress of economic cooperation under the HASHIMOTO-YELTSIN plan, which was adopted at the last summit in Krasnoyarsk, will also be discussed. Among the measures that HASHIMOTO is expected to present is the relaxation of application conditions of trade insurance toward Russia in a bid to increase Japan's private-sector investments in the country. The two leaders will also exchange views over how to upgrade bilateral cooperation in broad fields including security dialogue, the promotion of exchange of defense personnel and cultural exchanges. The two leaders are also expected to discuss how to form a framework for four-party security dialogue among Japan, Russia, China and the United States. Japanese Defense Agency Vice Minister Masahiro AKIYAMA proposed the four-nation security dialogue during his visit to Moscow in January. YELTSIN will be accompanied by his wife Naina YELTSIN and his daughter Tatyana DJYACHENKO. Presidential spokesman Sergei YASTRZHEMBSKY said on Wednesday that Moscow and Tokyo "badly need" an agreement on mutual protection and encouragement of investments. Meanwhile, acting Finance Minister Mikhail ZADORNOV will conduct talks in Tokyo to discuss technical aspects of a $1.5 billion credit to Russia earlier promised by Japan. This "untied credit" will be used to, "support Russian reforms," in the construction of housing for the military leaving the army, YASTRZHEMBSKY added.

Attack on Russian Convoy Kills Six

· Gunmen ambushed an auto convoy of the Russian Defense Ministry in North Ossetia leaving six people dead and seven wounded. The convoy was carrying a ministry commission on Thursday when it was attacked near Khurikau Gorge. The dead are Major-General PROKOPENKO. The deputy commander of Russian missile and artillery troops, Lieutenant-General Nikolai MUKHIN survived the attack with wounds. The Russian Interior Ministry immediately blamed the shooting on Chechen rebel forces, who do not recognize Chechnya's peace treaty with Russia. The Ministry says rocket-propelled grenades and machine-guns were fired by the gunmen. The attack appears to be one of the worst

since the Chechen war ended in 1996. Chechen government officials have denied involvement in the attack, and expressed their condemnation of the bloodshed. Chechen Deputy Prime Minister Kazbek MAKHASHEV, who is in Moscow for talks with Russian officials, called the attack a provocation.

Economy

Ruble = 6,110/$1.00 (NY rate)

Ruble = 6,129/$1.00 (CB rate)

Ruble = 6,111|6,147/$1.00 (buy|sell rates)

Nov Dec Jan Feb Mar Apr

Rus-Japan Trade in 1997 Increased

· On the eve of President Boris YELTSIN's visit to Japan, the Russian Ministry for Foreign Economic Relations announced that trade between Russia and Japan totaled over $5 billion in 1997, an increase of one percent from the 1996 figure. The Ministry said Russia's exports to Japan had grown 1.9 percent, to $4 billion in 1997, while imports had fallen off almost seven percent, to $1 billion. Raw materials, including non-ferrous and precious metals, timber, sea products and minerals, comprise the bulk of Russia's exports. The Japanese government earmarks two packages of economic assistance to Russia worth a total of $4.3 billion, ministry officials said. Cooperation in the development of Siberian and Far Eastern resources is a major aspect of bilateral trade and economic contacts. Six cooperative projects have been implemented to date.

Gold Reserves Decreased By 5 Percent

· As of April 1st, Russia's gold and currency reserves decreased by 5 percent since the beginning of the

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year, reaching $16.9 billion, the Central Bank of Russia stated today. During March, the reserves registered a $1.9 billion increase. As of April 1, 1998, the currency accounted for $11.9 billion in the reserves and the gold for $5 billion, compared to $12.9 billion and $4.9 billion, respectively, at the beginning of the year.

Business

Tyumen Oil Co. Tender To Be Annulled

· Acting Prime Minister Sergei KIRIYENKO said today that if it fails to pay off its arrears to the pension fund by the end of the month, Russia will annul a tender for a major stake in Tyumen Oil Company (TNK) and return the shares to the government. KIRIYENKO told the Russian State Duma that the company owed 600 billion old rubles ($100 million) to the fund. Alfa-Eko, part of the influential Alfa-Group conglomerate, teamed with a US investor and won a tender for 40 percent of the oil company in July, worth $810 million. The group has since earned controlling stake of TNK. In 1997, Tyumen Oil Company produced Russia's fifth largest output, mainly from its Nizhnevartovsknefteaz unit.

Ukraine, then it will make a positive decision." KUCHMA is also hopeful that the International Monetary Fun (IMF) will perceive the new law as a positive step and grant the nation a favorable review.

Ukraine To Sell Stake of Mykolayivoblenergo

· Ukraine's State Property Fund on Thursday said it will sell 5.32 percent of the electricity distribution utility Mykolayivoblenergo on stock exchanges from May 1 to August 1st. The Fund said that it also plans to sell a 40 percent stake in the company to the highest bidder at a commercial cash auction from May 1 to November 30th. The government will retain a 25 percent stake in the company; employees own 11.42 percent of shares. Workers and management are also entitled to a further 2.81 percent.

South Caucasus & Central Asia

Georgia-Turkey Sign Military Memorandum

· On Wednesday in Tblisi, Georgian Defense Minister Vardiko NADIBAIDZE and Chief of the Turkish General Staff Ismail Hakky KARADAI signed a memorandum of understanding regarding military cooperation. The document calls for military and technical cooperation, free training of Georgian military in Turkey and contacts between various branches of the armed forces. NADIBAIDZE said that Georgia and Turkey plan to hold a joint military exercises this year.

Georgia To Follow Merrill Lynch Plan

· Georgia's State Property Committee is expected to submit a Merrill Lynch plan for the privatization of the country's power sector to he government for final approval. Merab GABUNIYA revealed that the plan proposes privatizing the electric system over an 18 month period. Telasi, the state-run municipal distribution company in Tblisi, will be sold off within the first eight months. He added that 75 percent of Telasi will be sold to a single strategic investor. "Merrill Lynch thinks that the sale of Telasi will facilitate a rise in interest among potential buyers of regional power suppliers," GABUNIYA said. Both local and foreign investors will be invited to participate in international tenders for the energy sector. Georgia suffers from a shortage of energy. Head of Georgia's parliamentary gaft committee GIA BARAMIDZE said that corruption was the main cause of Georgia's energy problems. Former Energy Minister David ZUBIRASHVILI resigned last week amid allegations

Yuksi-Omsk Sign Agreement

· President of the Yuksi oil company Mikhail KHODORKOVSKY and governor of Russia's Omsk region Leonid POLEZHAYEV on Tuesday signed an agreement on cooperation between the region and one of Russia's biggest oil holdings. Under the agreement, the company will render assistance to the region in supplies of fuels and lubricants during the sowing campaign.

European Republics

Kuchma Offers Law To Cut Budget Deficit

· Ukrainian President Leonid KUCHMA on Thursday announced that the government will submit a new law to parliament next month proposing the budget deficit be cut. The plan calls for a cut to 2.6 percent of gross domestic product (GDP). In January the out going parliament passed the 1998 budget which calls for a deficit at 3.3 percent of the GDP. The new parliament, which will begin its term on May 12th, will have to approve the measure. KUCHMA is confident in the approval saying that, "If parliament attentively considers the problems occurring in

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of corruption in his ministry.

Uzbek-Daewoo JV To Raise Exports

· Uzbekistan's joint venture with South Korea's Daewoo Motor Corporation, UzDaewoo Auto, plans to raise 1998 exports to other former Soviet Republics from 14,600 vehicles in 1997 to 40,000 vehicles. UzDaewoo's general manager Bakhtiyer VAKHIDOV said, "Our production plan for this year is 80,000 cars, and we plan to sell about 40,000 cars, worth about $340 million, to the Commonwealth of Independent States (CIS)." UzDaewoo's 19997 exports of Nexia sedans, damas minibuses, and Tico minicars from its factory in Andizhan region were worth $133 million. VAKHIDOV said UzDaewoo plans to invest $20 million to develop its sales network around the CIS, primarily in Russia.

Kazakhstan Completes Gas, Oil Privatization

· Kazakhstan President Nursultan NAZARBAYEV said on Wednesday that privatization in the gas and oil sectors has been completed for the next two generation, since enough contract have already been signed. He added that, "For the third generation of Kazakhs there's still plenty left." Kazakh Prime Minister Nurlan BALGIMBAYEV said that, "Kazakhstan has halted further privatization of the oil and gas sector in order to determine what we want, where we are, and what we still have." Energy deals which have already been signed attracted billions of dollars of foreign investments from companies like Chevron, Mobil Corporation, BG PLC, Agip, and LUKoil.

Rus- Kyrgyz To Sign Migration Law

· Russia and Kyrgyzstan are expected to sign an agreement to enhance the bilateral legal basis for regulating migration, during the visits of Head of the Federal Migration Service of Russia (FMS) Tatyana REGENT and Russian acting deputy Prime Minister for Commonwealth of Independent States Affairs Ivan RYBKIN. REGENT and Kyrgyz Labor and Social Welfare Minister Imankadyr RYSALIYEV are to meet and discuss the agreement before signing it. The agreement provides for facilitating migration

between the two countries, for cutting customs duties and creating other benefits for them. REGENT and RYBKIN will separately meet with Kyrgyz Prime Minister Kubanychbek ZHUMALIYEV. The ethnic Russian community in Kyrgyz makes up almost 700,000 residents, while approximately 200,000 Kyrgyz citizens are now staying illegally in Russia.

RYBKIN will discuss the agenda of the CIS summit with Kyrgyz President Askar AKAYEV and convey an oral message from Russian President Boris YELTSIN. ZHUMALIYEV will represent Kyrgyzstan during the summit since AKAYEV will be on a planned visit to China.

Kazakh Ispat Karmet Receives EBRD-IFC Loan

· Kazakhstan's private industrial corporation Ispat Karmet has received a Western syndicated loan of $250 million. The loan was organized by the European Bank for Reconstruction and Development and the International Financial Corporation (IFC) as a part of a total $450 million loan. This is the largest loan ever issued to a CIS company. An IFC press release stated that the loan will go into expansion of production of Ispat Karmet, one of world-largest steel producers with 15 coal mines and pits. Ispat Karmet is a member of the international steel concern LNM Group.

OSCE Chairman Meets Kazakh President

· Kazakhstan's President Nursultan NAZARBAYEV on Wednesday met with acting Chairman of the Organization for Security and Cooperation in Europe (OSCE), Polish Foreign Minister Bronislaw GEREMEK to discuss the OSCE plan for central Asia. During the meeting Nursultan NAZARBAYEV noted that the OSCE showed, "unjustified passivity with respect to the conflict situation in Tajikistan." GEREMEK agreed with this viewpoint and highly appraised the activities of those Commonwealth countries, in particular, Russia and Kazakhstan, which had assumed peacekeeping functions in Tajikistan. GEREMEK welcomed the agreements between Russian President Boris YELTSIN and Nursultan NAZARBAYEV on the division of the Caspian.

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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