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

Thursday, April 2, 1998

The Our Home is Russia (NDR) faction of the State Duma is meeting today to determine its stand on Sergei KIRIYENKO's candidacy for Prime Minister, after he presents his government's economic program and answer ministers' questions. The Communist Party, which has balked at the President's nominee the most, may be swayed by YELTSIN's offer to accept suggestions for the cabinet. They have long demanded that YELTSIN form a "government of popular trust," based on the balance of power in the parliament. YELTSIN, however, reserves the right to reject their nominations.

Nizhny Novgorod Mayoral Election Annulled

· Nizhny Novgorod's Electoral Commission, in a vote of five to one with two abstentions, declared the controversial mayoral elections invalid. Businessman and convicted criminal Andrei KLIMENTYEV, who won the election, was found to have bribed voters and committed campaign funding violations. Many speculate that the Commission's decision was a result of pressure from high ranking officials, namely Russian President Boris YELTSIN who was "deeply concerned" over KLIMENTYEV's victory. Wednesday, KLIMENTYEV filed an appeal to overturn the commission's decision. Acting First Deputy Prime Minister Boris NEMTSOV said that a new ballot would be held in Nizhny Novgorod, but he did not rule out that KLIMENTYEV might be a candidate. Commenting on the mayoral elections in Nizhny Novgorod, first deputy speaker of Russia's State Duma Vladimir RYZHKOV said that in any civi

Russian Federation

Politics

Big Four Agree To Delay Vote On Prime Minister

· Russian President Boris YELTSIN, Federation Council speaker Yegor STROYEV, Russian State Duma speaker Gennady SELEZNYOV, and acting Prime Minister Sergei KIRIYENKO met outside Moscow and agreed to hold a roundtable meeting next Tuesday, which will focus on, "possible ways of pulling the economy out of crisis," the Kremlin's press service said. The four agreed to postpone a vote in the State Duma on the president's nominee for prime minister until April 8th. YELTSIN also encouraged State Duma factions and Federation Council members to nominate candidates for the new government. The President believes this approach will enable him to find, "non-traditional personnel decisions," the Kremlin said. During the meeting, KIRIYENKO presented his plan of action for the new government. KIRIYENKO described that the plan's, "key principle is to live within our means," by continuing efforts to boost tax revenues and control government spending. He pledged to reduce inflation and interest rates. He described the talks as the "utmost constructive."

YELTSIN's actions appears to show he has softened his approach with the parliament on KIRIYENKO's appointment. He hopes that by permitting them to suggest cabinet ministers, they might in turn approve KIRIYENKO on the first attempt. This 35 year-old, technocrat, with only seven months of government experience faces an uphill battle to be appointed. Of the seven Duma factions, so far only Vladimir ZHIRINOVSKY's Liberal Democratic Party has endorse the candidate, which they consider a "lesser evil." KIRIYENKO has been meeting with factions in hopes of winning their approval, but has ruled out using cabinet appointments as a bargaining chip.

Today's News Highlights

Russia

April 9th Protest On Schedule

New Trade Figures Released

Benton Oil Joins Rus. Co JV

Gillette To Build Blade Factory

South Caucasus & Central Asia

Zhvania States Georgia's Vision

Kocharyan Wins Presid. Elect.

Tajik Rebels Release Soldiers

Kazakhstan Foreign Investment

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lized country, only political parties have the right to nominate candidates for parliament, mayors, governors and presidents. Meanwhile in Russia, any person with a "money bag" can nominate himself, gather signatures, stand for elections and win. RYZHKOV has called for an amendment to the election law which would, "give the priority right of nominating candidates to political parties and movements...In this case, it would be impossible for criminals to win elections."

Today, KLIMENTYEV was arrested for, "disturbing public order" and violating an order not to leave Nizhny Novgorod while his criminal case is pending, RFE/RL Newsline reported. His lawyer charged that KLIMENTYEV did not leave the city that there are no grounds for his arrest, which the lawyer attributed to, "orders from above."

April 9th Protest To Continue As Scheduled

· Leader of the Federation of Independent Trade Unions (FNPR) Mikhail SHMAKOV confirmed on Wednesday that a Russia-wide action of protest will take place on April 9th as scheduled, despite Russian President Boris YELTSIN sacking the entire government to forestall the event. The protest focuses on the failing situation of the Russian economy, demanding payment of all wage arrears by July 1, 1998 and legislative protection of the working people's rights. According to official statistics, wage arrears, as of February 1998, had reached a new record figure of $57 billion or 768 million re-denominated rubles. SHMAKOV said that the action will take place in all branches of Russia's economy and all regions. He said it will include strikes at the enterprises where workers have not receive back wages, as well as meetings and pickets. SHMAKOV added that, "the trade unions will take thorough measures so that the action is carried out calmly...We have our own services and we also count on assistance from the Interior Ministry and law enforcement bodies in order to avoid possible provocations." SHMAKOV emphasized that no matter whether Sergei KIRIYENKO is appointed Prime Minister, "We are ready to work with any Cabinet, capable of solving our problems."

Commenting on the firing of the government, Duma Speaker Gennady SELEZNYOV emphasized that, "the President foresaw mood in the State Duma, as most deputies were inclined to pass a vote of no-confidence in the Cabinet during a government

report on the implementation of the 1997 budget on April 10th." Deputy chairman of the Central Committee of the Communist Party (CPRF) Valentin KUPTSOV believes that YELTSIN's decision to sack the government came as a result of pressure by the opposition. "The forthcoming on April 9 all Russian action of protest by trade unions would have been a day of a nation-wide demand for a government resignation," he said. The CPRF leadership qualified it [government dismissal] as dodging a report and responsibility before the State Duma and the Russian people.

Economy

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

Ruble = 6,112/$1.00 (CB rate)

Ruble = 6,093|6,131/$1.00 (buy|sell rates)

Statistic Com. Releases New Trade Figures

· Russia's foreign trade in February reached $11.3 billion (68.4 billion rubles), rising 1.1 percent compared with 1997 figures. The State Statistics Committee indicated that exports dropped to $5.8 billion compared to 1995 (a 12.8 percent decrease), while imports grew by 21.7 percent, reaching $5.5 billion, Itar-Tass reported. Russia's trade balance ran positive and reached $0.3 billion, which is $1.9 billion less that in the same period last year. Russia continued to boost trade with non-CIS countries to a total of $8.6 billion, up 0.5 percent from last year. Trade with CIS countries was 3.3 percent up to $2.8 billion. Russia's exports from non-CIS states dropped by 14.4 percent and from CIS states by 6.9 percent, reaching $4.5 billion and $1.4 billion respectively, while imports grew by 23.9 percent and 15.6 percent, amounting to $4.1 billion and $1.4 billion respectively.

Russia's retail trade turnover in February increased by 3.7 percent compared to the same period last year and totaled 71.7 billion rubles. The State Statistics Committee indicated that trade in February was 8.4 percent less compared to 1997 figures. Manufactured goods accounted for 52.5 percent of the total in the macrostructure of annual retail turnover and food products for 47.5 percent. Retail food sales totaled 34.1 billion rubles, a 1.7 percent increase from the same period last year. Retail sales of manufactured goods amounted to 37.6 billion rubles, 5.6 percent up from the same period last year. Consumer goods sales made up 28.6 percent of the

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overall retail turnover in February, with trade organizations securing the rest.

Business

UES Stops Electricity Supplies To Kazakhstan

· Russian Electric company Unified Energy Systems (UES) stopped supplies of electricity to Kazakhstan's Kustanai region on Wednesday due to chronic debts of earlier deliveries. A spokesman at the Kustanai regional administration said that the region, which produces ores for non-ferrous metallurgy and grain, has been weaned from a supply of 100 megawatts. The debts total 1.206 billion tenge or about $15.7 million. Russia repeatedly warned the Kustanai regional administration before cutting supplies off. Kazakhstan's electric stations supply about 70 megawatts to the Kustanai region which has been running on austerity electricity rations. Since Russia's deliveries have been stopped, only vital sites are supplied with electricity.

Benton Oil Joins Severneftegaz

· Benton Oil and Gas Company today announced that it has reached an agreement to earn a 40% equity interest in the Russian Open Joint Stock Company Severneftegaz. Severneftegaz owns the exclusive rights to evaluate, develop, and produce the natural gas, condensate, and oil reserves in the Samburg and Evo-Yakha license blocks. The two blocks comprise 837,000 acres within and adjacent to the Urengoy field, Russia's largest producing natural gas field. Benton has received the approval of 100% of the shareholders of Severneftegaz to earn an equity interest in exchange for providing the initial $100 million needed to achieve early natural gas production. Severneftegaz and Russian engineers have estimated that recoverable proved, probable and possible reserves in the two blocks total 17.9 trillion cubic feet of natural gas, 794 million barrels of condensate, and 1.2 billion barrels of oil. Benton and Severneftegaz anticipate gas and condensate production and sales in the second half of 1999, to be followed by oil production. This project will represent the second major development project in Russia for Benton. The Company also owns a 34% equity stake in the North Gubkinskoye Field that currently produces approximately 8,500 barrels of oil per day and is located south of the East Urengoyoil development project.

Gillette Begins Construction on Blade Plant

· The Gillette Company on Monday began construction of a $40 million new blade and razor facility in St. Petersburg. The plant is designed to produce up to 860 million blades and include administrative offices, a warehouse and distribution center. Gillette signed a joint venture agreement with Leninets in 1991 to manufacture blades, shaving systems and disposable razors in St. Petersburg for the Former Soviet Union (FSU) market. Gillette employs more than 500 people throughout the FSU and the company's sales have expanded to over $200 million a year. Executive Vice President of Gillette's International Group Jorgen WEDEL said, "This new facility will allow us to further expand local production of a wide range of quality Gillette products in this rapidly growing market." He added that the Russian market is the third largest in the world. "Total annual blade consumption is nearly 2 billion blades, and about 80 percent of that is double edge blades, which means that we have great market expansion opportunities as we trade consumers up to better-performing twin blade products." Gillette began importing blades into Russia in 1989.

South Caucasus & Central Asia

Zurab Zvhania Describes The Future Of Georgia

· Chairman of the Georgian Parliament Zurab ZHVANIA outlined the progress and future of Georgia in a speech to the World Affairs Council and Stanford University. He stated that since the 1995 elections the Georgian economy had stabilized. In 1997, the inflation rate was below 8 percent. Gross Domestic product averaged over the last two year 11 percent, making Georgia the third fastest growing economy in the region after Albania and Bosnia. "In 1998 Georgia takes the final step of privatizing largest enterprises, industries, and sectors," which includes complete privatization of the energy, transport, telecommunications sector, the steel, chemical, and mining industries. ZHVANIA added that, "We are facing rapid development and growth of non-governmental sector to be the major impetus to the future democratic institutions building and the most active part of democratic society." He relayed a positive vision of the future of Georgia and its interdependent region. The trans Eurasian corridor, "the modern version of the Great Silk Road," offer Georgia and its neighbors a unique opportunity of

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attracting foreign investors to assist in the transport of Caspian oil and gas to western markets. The corridor also transport cotton and other raw materials. ZHVANIA, however, also noted that the corridor is not only used for the exchange of goods, but also ideas and new political relationships. As oil and other commerce begins to further united the region, the corridor provides access to, "common approaches to the regional security and stability." ZHVANIA pointed out, "The strategic geopolitical location allow Georgia to play a pivotal role in the process of new regional cooperation creation, which includes the network of countries of the Black Sea (Ukraine, Turkey, Bulgaria, Romania), republics of the Southern Caucasus (Azerbaijan, Armenia, Georgia) and the five Central Asian states (Turkmenistan, Uzbekistan, Tajikistan, Kyrgyzstan, and Kazakhstan)." For many of these former Soviet Republics, Georgia clearly represents the gateway to the west, democracy, market driven economies, regional security, and respect for sovereignty. Unfortunately, ZHVANIA noted that there are influential forces that have failed to accept the republic's independence from Russia. "The trouble is that they are not only speaking, they are acting through inflaming terrorism, ethnic tensions, aggressive, armed separatism, even harboring international terrorist using all possible pressure tools. They are engaged in all sorts of covert actions against independent countries of the region." The difference in these forces' vision for Georgia and ZHVANIA's threaten to destabilize Georgia and the region. ZHVANIA is in the United State until April 7th visiting Washington DC, and New York.

Kocharyan To Be Inaugurated On April 8th

· Armenia's central election commission on Wednesday approved preliminary results of the presidential elections in which Prime Minister Robert KOCHARYAN won with 60 percent of the vote, while Karen DEMIRCHYAN received 40 percent. Under the constitution, the central election commission is to sum up election results by Monday and publish them on April 7th. The Armenian parliament passed the decision to swear in the newly elected President at

Yerevan's opera theater on April 9th. An investigation in to accusations by DEMIRCHYAN's campaign advisor regarding voting fraud is underway. The United States, nonethless, congratulated KOCHARYAN on his win and wished him well in forming a new government. State Department spokesman James RUBIN expressed his hope that KOCHARYAN would further implement economic and political reforms and reach a political resolution to the disputed region of Nagorno-Karabakh.

Tajik Opposition Conflict Ends

· Secretary of Tajikistan's Security Council Amirkul AZIMOV said that 16 government soldiers, who had been held captive by the field commanders of Kofarnikhon groups of Tajik rebels, were released late Wednesday, ending the worst outbreak of violence since a 1997 peace accord ended the five year civil war. He said the release was negotiated between the members of the joint government-and-opposition commission and the field commanders of local groups with the participation of UN military observers. This morning, the commission left for Kofarnikhon to monitor the implementation of the protocol on a complete withdrawal of opposition and government forces to their permanent stations and on full stabilization of the situation in Kofarnikhon District. The conflict began on March 24th, when opposition fighter seized more than 100 government troops, leaving 20 people dead.

Kazakhstan's Foreign Invest. Increased in 1997

· Direct foreign investment in Kazakhstan increased in 1997 to 41.6 billion from $1.2 billion in 1996. Director of the state investment committee Viktor SOBOLEV said that, "Around 40 percent of this money has been invested in the oil and gas sector...These [investments] are not just intentions of foreign companies but real legal contracts signed." He added that on a per capita basis, direct foreign investment Kazakhstan is first among former Soviet Republics. He attributed this attraction to the fact that Kazakhstan has a, "friendly investment climate and a liberalized economy."

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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