DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, April 28, 1998

the 15 nation union against unfair pricing of imports. The change will allow Russian industries to be considered on a case-by-case basis when the EU is weighing whether anti-dumping penalties are justified. Sir Leon BRITTAN said that China and Russia have made real economic progress toward becoming market economies. The EU officials said the EU move recognizes China's and Russia's efforts to transform their economies by allowing domestic price information to be used in anti-dumping investigations if the existence of market economy conditions can be demonstrated. Under EU rules, dumping occurs when a manufacturer sells goods on an export market at a price lower than its normal value. Trade between EU and Russia has also increased dramatically, from 17,600 million ECUs in 1992 to 42,400 million ECUs in 1996.

Russia-Chechnya Sign 1998 Oil Deal

· Russian oil transport monopoly Transneft said that Russia and Chechnya on Friday agreed to 1998 oil deliveries from Azerbaijan to Russia's Black Sea Port of Novorossiisk during talks with Transneft, Chachentransneft, and Fuel and Energy Ministries from Russia and Chechnya. Transneft spokesman Alexei SKVARTSOV said Russia and Azerbaijan expect approximately 1.5 million tons or 30,000 barrels per day to pass from Baku to Novorossiisk. Transneft has already delivered all 200,000 tons of Azeri oil planned for the first quarter. SKVARTSOV added that the volume will increase to 550,000 tons in the second quarter. He did not

Russian Federation

Politics

Russia Assisted India's Missile Program

· On Monday, The New York Times reported that Russia has been assisting India in the development of sea launched ballistic missiles that can carry nuclear warheads and strike Pakistan for the last three years. US Vice President Al GORE and other senior CLINTON administrative officials have urged Russia to halt this support, which many see as a violation of a 1993 agreement between Russia and the US to prevent proliferation of ballistic-missile technology (MTCR). State Department, Pentagon, and Central Intelligence Agency officials are divided on whether Russia's assistance violated the missile agreement, which could result in sanctions against Russian and India. The article reported that Russia's precise role in the project is still not clear. Russia insists that its assistance was limited and involved only with the technology needed to launch a missile from beneath the sea's surface. The new missile called Sagarika, with a range of 200 miles, is the latest breakthrough in India's arms race with Pakistan. Earlier this month Pakistan tested its own nuclear missile that can strike anywhere in India. India and Pakistan have fought three wars since their independence from Britain in 1947. It is believed that this new missile could heighten tensions in South Asia. Indian Foreign Ministry officials deny that Russia is helping New Delhi build a sea-launched ballistic missile, saying there is no truth in The New York Times report.

EU Recognizes Russia's Market Status

· The foreign ministers of the European Union (EU) agreed on Monday to remove the "non-market economy" status label from Russian and Chinese products. The ministers' agreement is expected to prompt updates to anti-dumping rules that protect

Today's News Highlights

Russia

IMF Pressures Russia On Trade

Yuksi Defaults on $500M Loan

European Republics

Estonia Considers Visa Program

Latvian Pres. Visits Italy

Baltic States Back Latvia

South Caucasus & Central Asia

CIS Security Heads Meet

Customs Union Considers Tajik

Japanese In Uzbek, Kazakh

Politics-Economics-Business

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Tuesday

April 28, 1998

Intercon's Daily

reveal if a tariff was included in the deal and declined to mention how much Chechnya would be paid for ensuring the safe transit of Azeri oil across its territory. If a tariff was included, it could be interpreted that Russia views Chechnya as an independent nation and not an autonomous republic. Russia has avoided this issue by claiming that talks on oil transportation are commercial, between companies not countries. Russia still plans on building a pipeline that will bypass the Chechen territory to reduce its reliance on the volatile area, but SKVARTSOV says, "questions remain on how to finance it."

Economy

Ruble = 6,131/$1.00 (NY rate)

Ruble = 6,132/$1.00 (CB rate)

Ruble = 6,108|6,156/$1.00 (buy|sell rates)

IMF Pressing Russia on Anti-dumping Law

· The International Monetary Fund (IMF) has been pressuring Russia not to implement a law on trade retaliation and anti-dumping signed by Russian President Boris YELTSIN and approved by the parliament. The law provides the legal basis for Russian domestic producers to launch anti-dumping complaints against foreign imports in a fashion similar to actions taken by the US, Mexico and Canada. First Deputy Minister Georgy GABOUNIA said that before the law was passed, the Russian Ministry of Foreign relations was powerless to act on complaints of import dumping. IMF representative to Moscow Martin GILMAN decribes the new law as, "very harsh and restrictive, and we need to know how the government plans to apply the law in practice," The Journal of Commerce reported. Head of the IMF's press office Graham NEWMAN said that a secret memorandum of understanding is linked to the letter of intent which was signed by Prime Minister Sergei KIRIYENKO and Central Bank Chairman Sergei DUBININ. The confidential memorandum outlines policy conditions the Russian government must follow in order to receive IMF loan installments. Russian sources have disclosed that some of the secret provisions include the sacking of 200,000 health and education workers, the discharge of military officers, and the non-implementation of the new trade protection regime.

29,000 Financial Sector Crimes in 1997

· Interior Minister Sergei STEPASHIN at the 8th

congress of the Association of Russian Banks said that a total of 29,000 crimes have reportedly been committed in the Russian finance sector in 1997. The losses caused by these crimes made up 40 percent of the overall losses caused by all kinds of crime committed in Russia. Counterfeit bills and falsified resolutions allegedly passed by Arbitration Court account for the biggest share of illicit activities in the finance sector. STEPASHIN pointed out that the number of crimes connected with unauthorized access to computer data base and telecommunications systems grew. From 1993 to 1997, several hundred crimes related to unauthorized access to the computer network of the Central Bank and the Russian Savings Bank had been committed. In 1997, more embezzlement crimes had been reported. STEPASHIN also mentioned an increase of crimes on the stock exchange.

Business

Yuksi Defaults On Western Loans

· Russia's largest oil company formed from the merger of Yukos and Sibneft, Yuksi has defaulted on a $500 million loan from Western banks because Yuksi failed to meet collateral requirements of 660,000 short tons of crude oil per quarter. Although the company claims this is simply a clerical mistake which has been corrected, the default is being closely monitored by the energy sector. Gazprom, LUKoil, and other Russian companies have borrowed billions from Western banks as a means of raising funds without having to part with equity. Yuksi's loans had been used to finance an ambitious expansion program, in which the company bought several Russian oil concerns to become the world's third largest oil producer. But the shopping spree has left the company vulnerable to the world's oil market. To pay off the credits and at the same time offset low oil prices, Yuksi has been forced to increase exports, The Wall Street Journal reported.

Gazprom-Bulgaria Gas Deal

· A delegation from the Russian gas giant joint-stock company Gazprom, led by Chairman Rem VYAKHIREV Monday in Sofia met with Bulgarian Deputy Prime Minister in charge of the power industry Yevgeny BAKYRDZHIEV to negotiate the supply and transit of Russian gas. The two sides signed two agreements and a memorandum for long term trade of Russian gas to Bulgaria and its transit to third

When you need to know it as it happens

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countries, valid until 2010. Natural gas deliveries to Bulgaria are to gradually increase from 6 billion cubic meters per year to 8 billion cubic meters per year. Russian natural gas is to be supplied to Bulgaria through the Top Energy Rus-Bulgarian joint-stock company, which is to be restructured into a company with a 100 percent participation of Gazprom. A long-term contract for the transit of Russian gas across Bulgarian territory was signed between the Gazexport foreign-trading enterprise and the Bulgargaz. Under the memorandum, Bulgaria is obliged to expand the facilities for transmitting gas from Russia to Turkey, Greece, Serbia and Macedonia up to 30 billion cubic meters annually by 2004. Bulgaria will receive a 8 percent transit fee on any natural gas transited to a third country. Russia agreed that 20 percent of the cost of the gas supplied could be paid in labor and goods. VYAKHIREV said that prices for the transit and deliveries will remain a commercial secret, but that concrete figures for the deal will be made public later this week. Difficult talks between Gazprom , the Bulgarian government and the national gas company Bulgargaz have been conducted for years. However several months ago when the term of the Yamburg agreement expired, the sides were left without a contractual basis for regulating export and transit of Russian gas. According to an agreement initialed by VYAKHIREV and BAKYRDZHIEV in Moscow on March 20th, the volume of transit gas across the Bulgarian territory is to increase to 9.9 billion cubic meters this year and reach 18.7 billion cubic meters by 2010. During negotiations, VYAKHIREV also mentioned the need to build the second gas pipeline, capable of boosting pumping capacity of the Bulgarian transit network.

Union and regained independence in 1991. Estonia is the only nation out of the three Baltic states allowed to apply for EU membership in the first round of EU expansion. According to experts, Estonia may become a member of the EU by 2005.

Latvian President To Visit Italy

· Latvian President Guntis ULMANIS arrived in Rome Monday for a three day official visit, the first by the head of state of an independent Latvia. ULMANIS is scheduled to meet his Italian counterpart Oscar Luigi SCALFARO and Italy's parliamentary leaders today. Meetings with Italian Prime Minister Romano PRODI and Foreign Minister Lamberto DININ are also planned. Italian President SCALFARO visited Latvia last May and PRODI was in Riga in February.

Baltic States Back Latvia In Row With Russia

· The Presidium of the Baltic Assembly, which is composed of representatives of the three Baltic parliaments, issued a declaration on Friday condemning Russia's, "open political and economic pressure on Latvia" and supporting Riga's attempts to normalize the situation, RFE/RL Newsline reported. The Presidium also expressed, "special concern over the campaign by some Russian regional leaders against Latvia, which can jeopardize normal relations between the citizens of the two neighboring countries for a long time." On Thursday, EU commissioner for external relations Hans VAN DEN BROEK met with Russian Deputy Foreign Minister Aleksandr AVDEEV in Brussels and advised Russia not to use trade and economic sanctions against Latvia. VAN DEN BROEK told AVDEEV that such measures would not positively contribute to the integration of ethnic Russians into Latvian society.

South Caucasus & Central Asia

CIS Security Service Heads Meet In Yerevan

· A meeting of the council of chiefs of security bodies and secret services of the member-states of the Commonwealth of Independent States (CIS) opened in Yerevan on Monday. Participating in the conference are representatives from eleven countries, including Director of the Russian Federal Security Service, General of the Army Nikolai KOVALYOV, the Armenian Minister of the Interior and National Security Serge SARKISYAN, and his counselor Mikhail GRIGORYAN. The 14 item agenda includes

European Republics

Estonia Considers Visa Program

· Estonian President Lennart MERI said that Estonia is considering the introduction of a visa program with Latvia and Lithuania. Visa relations will be established with Latvia and Lithuania if Estonia becomes a member of the European Union (EU) and faces the need to meet EU demands to reinforce the eastern border of the EU, the Estonian President said. Estonian border guard troops are prepared to defend the external border of the EU. Single visa space between Estonia, Latvia and Lithuania was created shortly after they seceded from the Soviet

When you need to know it as it happens

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some confidential topics. Security service chiefs will discuss cooperation with a focus on its military-technical aspect, information exchanges concerning the migration and terrorism fighting, and establishing hot line contacts. The security meeting will also address cooperation in fighting the drug traffic. Since organized crime knows no borders and is mostly trans-national, criminals regard the territory of the former Soviet Union as a convenient place not only for drug-trafficking, weapons smuggling, and laundering of dishonestly made money, but also for getting away from the law enforcement bodies of one state, where they had committed a crime, to some other CIS country. Therefore, the officials said, it is necessary to coordinate the efforts of the CIS law enforcement bodies, primarily by enhancing the effectiveness of the information exchange system. KOVALYOV will propose the creation of a pooled database to cooperate against these forces.

Customs Union Meets In Moscow

· A summit of the leaders of Russia, Belarus, Kazakhstan and Kyrgyzstan, the four CIS countries making up the Customs Union, opened in Moscow today. Tajikistan's accession to the Customs Union will be one of the key issues to be considered by the four countries' Interstate Council. The meeting participants are expected to adopt a decision to complete the accession process by December 31, 1998. Tajikistan will be able to participate in the work of all key mechanisms of the Customs Union after Tuesday's meeting. The Tajik delegation includes Tajik President and Prime Minister Emomali RAKHMONOV and First Deputy Prime Minister Khodzhi Akbar TURADZHONZODA.

The Presidents of Russia, Belarus and Kazakhstan and the Kyrgyz Prime Minister Kubanychbek ZHUMALIYEV, who is substituting for President Askar AKAYEV, are also expected to agree on a single position on the accession of their countries to the World Trade Organization (WTO). The four countries may adopt a joint document specifying the mechanisms they will use to influence talks with the

WTO. Russia has also proposed discussion on a draft treaty determining the status of the citizens from one country of the Customs Union who permanently reside in another member-country. The accord is to place expatriate nationals into a category other than foreigners and make them fully eligible for education, medical care, social benefits, property acquisition and employment. The leaders will also consider transferring the Customs Union's headquarters from Moscow to Almaty. The four leaders plan to discuss a draft treaty creating a single economic space in the CIS and adopt a ten step statement to meet the needs of citizenswhich was proposed by Kazakh President Nursultan NAZARBAYEV.

Mission to Uzbekistan and Kazakhstan

· About 50 executives of major Japanese companies have departed for a week-long tour of Uzbekistan and Kazakhstan. The delegation of the Federation of Economic Organizations, led by Keidanren President Shoichiro TOYODA, intends to discuss with government representatives of the two Central Asia republics ways to stimulate their economic cooperation with Japan. In Uzbekistan the Japanese delegation will meet Uzbek President Islam KARIMOV to discuss prospects for development of economic and technological cooperation between business circles of the two countries in the development of oil and gas deposits in Uzbekistan. Cooperation in the field of oil and gas industry will be on the agenda of a meeting between the Japanese entrepreneurs and Kazakh President Nursultan NAZARBAYEV. The Japanese delegation also intends to discuss prospects for development of cooperation in the area of electric power engineering, railway construction and industrial production. In January, the Japanese government adopted a program of activities for the Silk Road diplomacy, which envisages establishment of broad political contacts and economic cooperation with eight Central Asian and Caucasian republics of the CIS. One key provision of the program is Japanese economic assistance to Azerbaijan, Armenia, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.

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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