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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, April 8, 1998

Russian Federation


Russia Considers Oil Routes Bypassing Latvia

· Russia President Boris YELTSIN, who blames Latvia for discriminating against its ethnic Russian minority, demanded that the government consider alternative oil export routes bypassing Latvia. YELTSIN's actions are undoubtedly the latest in a row which has developed between the two nations following a crackdown on Russian-speaking protesters last month. The President demanded that organizational and financial measures should be taken to implement his decree of June 6, 1996 on ensuring transit of goods across seaside territories of the Gulf of Finland. The matter in question is construction of new ports and, above all, oil terminals on the Gulf of Finland. The Latvian port of Ventspils, through which 11 percent of Russian oil exports passed to the West in 1997, is the second largest outlet after Novorossiisk, which transits 25 percent.

YELTSIN regards as very productive and "fruitful" measures of economic influence on the Latvian leadership, suggested by the Russian leaders, including Moscow Mayor Yuri LUZHKOV as well as governors of the Saratov and Yaroslavl regions Dmitri AYATSKOV and Anatoli LISITSYN. LUZHKOV has suggested restrictions on the transport of Russian energy resources, metals, and other good through Latvia, which earns money from tariffs. The Moscow government intend to appeal to the Russian people, suggesting to boycott Latvian goods until the problem of granting equal civil rights and social guarantees to all permanent residents of Latvia regardless of their nationality is resolved. The Moscow authorities also intend to recommend to Russian entrepreneurs to refrain from doing business in Latvia until it changes its political course. The Presidential press service explained that these economic

measures cannot be called "sanctions," preferring the phrase, "purpose-oriented economic measures of influence," on Latvia.

Council of Europe Measures Approved

· Russia's acting Economics Minister Yakov URINSON on Tuesday said the annulment of quotas on Russian textile exports to European Union (EU) countries is the, "first actual breakthrough in the promotion of Russian-made goods onto foreign markets." Three-years of negotiations with the EU yielded an agreement on mutual annulment of quotas on Russian textile export, which was signed in Brussels on March 30th. The agreement will allow Russia to remove long-standing limitations on exports of its goods to the EU countries, push up budgetary revenues and help encourage investments into the Russian light and textile industries. The annulment is applicable to 34 brand name Russian goods, URINSON noted. The European Union's canceled quotas will begin on May 1st, while Russia will take reciprocal actions to fulfill its commitments shortly. A governmental resolution is being prepared to annul quotas on imports of Belgium-made carpets, URINSON added.

CIS Summit to Examine Key Issues

· The Commonwealth of Independent States' (CIS) Executive Secretary Ivan KOROTCHENYA announced that the CIS will hold the twice delayed summit on April 29th. Kyrgyz President Askar AKAYEV will not be able to participate personally in the summit be

Today's News Highlights


Italy Foreign Min. Visits Russia

CB To Withdraw Bank Licenses

LUKoil-Tatneft Buy Central Fuel

Gazprom To Take $2B Loan

European Republics

Ukraine Cuts Gov't Spending

Rus-Ukraine Fail on Azov Sea

South Caucasus & Central Asia

No Progress on Abkhaz Peace




April 8, 1998

Intercon's Daily

cause of a previously scheduled trip to China. He will be represented by the head of government, vested with all necessary powers. KOROTCHENYA noted that strategic issues will be listed on the summit's agenda, including the key issue of a free trade zone. He also said that the CIS Executive Secretariat has summarized proposals by CIS states on improving the CIS, which will be presented to the members to assist in the reorganization. KOROTCHENYA noted that the Executive Secretariat plans, "30 percent cuts in its staff."

Italy Supports Russia's International Role

· Italian Foreign Minister Lamberto DINI ended a working visit to Russia on Tuesday by meeting Italian businessmen. The visit included negotiations with Russian Foreign Minister Yevgeny PRIMAKOV to discuss the situation in Kosovo and the Balkans, the developments in Iraq and Iran and the remaining standstill in the peace negotiations of Israel and Palestine. The Italian minister also met with Russian acting First Deputy Prime Minister Boris NEMTSOV, a co-chairman of the Russian-Italian Council of Economic, Industrial and Financial Cooperation, and Russian acting Prime Minister Sergei KIRIYENKO. DINI emphasized the close ties and regular consultations on all aspects of the bilateral and international relations. DINI said both Italy and Europe are very much interested in the success of large-scale transformations underway in Russia. Italy supports the initiatives aimed at a greater involvement of Russia in international organizations and the whole international community. "Russia is a large country and a great nation and Italy counts on the Russian role in the consolidation of international stability," DINI said.


Ruble = 6,118/$1.00 (NY rate)

Ruble = 6,119/$1.00 (CB rate)

Ruble = 6,104|6,134/$1.00 (buy|sell rates)

Government Toughen Capital Flight Policies

· Deputy head of the Interior Ministry's directorate on economic crime Police Major-General Kuzma SHALENKOV on Tuesday said, "We have offered Russian exporters a month, or two at most, to take exhaustive measures to have their hard currency revenues returned from abroad and be placed with Russian authorized banks." In his words, those

exporters who do not fulfill this demand will be thoroughly checked. "And, believe me, I wouldn't be in their place," he stressed, adding that no excuses of insolvency or irresponsibility "will be considered." Directorate's experts have analyzed 22,500 export contracts and established that in the past three years Russian exporters have failed to receive payment of $12 billion for goods shipped abroad, including $1 billion for oil and oil products and $737 million for non-ferrous metals. Among major currency debt owners are leading foreign trade organizations such as Rosvoorouzhenie, Tyazhpromexport, Rosvneshtorg, Tekhnopromexport and Balkar Trading. SHALENKOV stated another channel through which capital flows abroad is misappropriation or embezzlement of credits which are subsequently converted into hard currency denominations to be transferred to foreign banks. An estimated 60 to 70 percent of credits to the sum of 70 billion rubles (roughly $10 to 11 billion) were transferred abroad.

CB Considers Withdrawing 30 Bank Licenses

· Deputy Chairman of the Central Bank of Russia Alexander TURBANOV said on Tuesday that the Central Bank has been considering the problem of withdrawing licenses from approximately 30 commercial banks. According to TURBANOV, approximately one-fourth of all Russian banks have been in a critical financial position. Since 1997, the number of existing crediting organizations in Russia has declined from 2029 to 1697 and registration and licensing requirements have been tightened for crediting organizations established anew. Although the situation in the economy remains rather difficult, measures for strengthening the banking system have yielded good results, TURBANOV said. The number of crediting organizations showing no problems has increased from 54.3 percent in 1997 to 65.9 percent by February 1998.


Lukoil-Tatneft Buy Central Fuel Co. Stakes

· Moscow Mayor Yuri LUZHKOV, Tatarstan President Mintimer SHAIMIYEV, LUKoil President Vagit ALEKPEROV, Tatneft General Director Rinat GALEYEV and Board Chairman of the Central Fuel Company Yuri SHAFRANIK have concluded a general agreement of cooperation, which provides for economic integration in oil exploration, production, transportation, refining, and distribution. LUKoil and

When you need to know it as it happens




April 8, 1998

Intercon's Daily

Tatneft will also coordinate the distribution of crude oil among Russia's oil refineries. LUZHKOV said that LUKoil and Tatneft will buy 13 percent in the Central Fuel Company stock each. Moscow owns 38 percent of Central Fuel. LUZHKOV commented that, "Nothing can bind a conglomerate together better than the ownership of common property." Tatneft earlier agreed on supplying 300,000 tons of crude to the Moscow Refinery a month, and LUKoil, 600,000 tons a month. LUKoil and Tatneft also agreed to work jointly on oil field development projects in Russia and other countries, participate in tenders for licenses to use resources in promising areas and to establish joint ventures. They will also pool efforts in privatization contests for share packages of Russian enterprises and other economic facilities. In order "to carry out joint projects," the two will form new financial-industrial groups or other economic structures. The participants in the agreement are planning to found an association of oil companies of Russia to protect the proprietary, legal and social interests of oil industry enterprises and their employees.

Gazprom To Apply for $2 Billion Loan

· Russia's gas giant Gazprom's chairman Rem VYAKHIREV said on Tuesday that Gazprom is planning to take a $1.5 to $2 billion loan from European financial markets in May. VYAKHIREV said Gazprom will use the loan to service company debts, pay wages, and build up working capital. Dividends for last year may range 300 to 400 percent. "In any case they will be no lower than 200 percent," VYAKHIREV said. He described the Russian market as the company's main priority, because domestic gas sales were more profitable than export. VYAKHIREV said important means of market activity were contracts with Russia's regions, under which administrations contribute to Gazprom's investment programs in payment of their debts for gas. VYAKHIREV said that this year Gazprom was reducing by one-third investments into gas production and transportation as compared with last year.

Rus-US Open Joint Aviation Center

· The Russian Aeroflot Air Company and the US Rockwell Collins Company have opened a center to service the on-board radio-electronic equipment at the Moscow Sheremetyevo Airport. The center will service the systems used to prevent a collision of aircraft. The system must be installed in every

aircraft flying to the US. The center will service other on-board radio-electronic systems as well. Rockwell Collins has supplied diagnostic equipment and a check-up technology. The Russian side assigned a technical building and trained its specialists in the US. Rockwell Collins opened 14 centers for diagnostics and servicing of the on-board radio-electronic equipment throughout the world. The Sheremetyevo center does not differ from others on its equipment and technology. The cooperation with Aeroflot will expand after it adopts ten new Boeing 737-400 and 20 IL-96M/T aircraft.

European Republics

Ukraine To Cut Government Spending

· Ukrainian Finance Minister Igor MITIUKOV said that Kiev is prepared to impose tough fiscal measures, including deregulation, stricter budget discipline, and banking reform, required to qualify for a three year loan from the International Monetary Fund (IMF) worth $2 to $2.5 billion. The Ukrainian government slashed public spending plans by 30 percent in an attempt to bring the budget under control. This cuts 1.5 billion grynvia ($750 million) from planned spending for the second quarter. MITIUKOV pledged to make equally deep cuts in the third and fourth quarters. President Leonid KUCHMA supports the reductions. By tightening its budget, Ukraine hopes not only to earn the IMF loan but also win back foreign investors who have backed away from Ukraine due to political infighting and economic disarray, the Financial Times reported.

An IMF mission arrived in Kiev on Tuesday to review the nation's progress on preconditions for the loan. Earlier this year, the IMF suspended an $585 million standby loan to Ukraine because the government's spending promises had exceeded its revenues. The IMF's refusal to lend to Ukraine led the World Bank to change plans for the issue of two loans to Ukraine worth $600 million.

Rus-Ukraine Fail to Divide Azov Sea

· The Russian-Ukrainian Commission for Territorial Division held its first session in Moscow on April 1st, but failed to agree on how to resolve a dispute over the Azov Sea. Leonid OSAVOLYUK, a director responsible for territorial division in the Ukrainian Foreign Ministry, said the two countries agreed to set

When you need to know it as it happens




April 8, 1998

Intercon's Daily

up a special commission to tackle the issue in mid-May. Russia regards the Azov Sea as a common property belonging to both countries and therefore believes it is not necessary to divide it up. OSAVOLYUK said Ukraine wants most of the continental shelf of the Azov Sea. Experts believe that the Azov Sea, with an area of 39,000 square kilometers, has rich reserves of oil and natural gas. Ukraine and Russia share a land border 2,500 kilometers long and marine borders of 500 kilometers. The major territorial disputes focus on the division of the Azov Sea and the Kerch Strait, which link the Azov Sea and the Black Seas.

South Caucasus & Central Asia

Abkhazia Peace Settlement Shows No Progress

· Developments in Abkhazia over the past week offer a snapshot of the entire spectrum of obstacles to the political settlement of the conflict between Abkhazia and the central Georgian government. On 31 March, Georgian, Russian and UN representatives held the third session of the Coordinating Council created last November under UN auspices Gali. The Abkhaz leadership refused to condone the participation of Tamaz NADAREISHVILI, chairman of the so-called Abkhaz parliament in exile. General Harun AR-RASHID, commander of the UN observer force in western Georgia, complained that Georgia is violating the cease-fire agreement signed in 1994 by maintaining a military presence in Zugdidi, and that the protest by Georgian refugees is hindering his men from their duties. Russian special envoy Gennadii ILICHEV charged that sporadic guerrilla attacks on the CIS peacekeeping force deployed along the internal border between Abkhazia and the rest of Georgia prevent the peace-keepers from adequately protecting ethnic Georgians in Gali. The Abkhaz participants condemned Georgian guerrilla activities, whereupon the Georgian delegation proposed creating an anti-guerrilla force with UN and CIS representation. However, it is not likely that the Abkhaz will agree to this proposal and allow the

introduction of any forces other than Russia, into territory under their control. The Georgian National Security Council warned that if such instances of "ethnic cleansing" continue, Tblisi will resort to retaliatory measures in order to protect Gali's Georgian population. ILICHEV accused both the Abkhaz and Georgian leaderships of "maximalism" and of refusing to consider mutual concessions over the contentious issue of Abkhazia's future status within Georgia. ILICHEV expressed doubt that either Russia or the UN will be able to impose a solution to the conflict. These talks, as those in the past, have failed to make any headway. This lack of progress, unfortunately, appears to be the intended outcome and up until now Russia has failed to pressure the Abkhaz to break the stalemate.

Georgian President Eduard SHEVARDNADZE appears to be determined on enlisting the support of his fellow CIS presidents for the guidelines drafted by Tblisi on resolving the conflict. Those guidelines envisaged that the CIS peace-keepers be redeployed throughout Gali, not merely along the internal border, repatriation of Georgian displaced persons to Gali should begin within two months, and talks between Georgia and Abkhazia on economic issues be postponed until the repatriation process is complete. The guidelines also empowered Georgia to demand the withdrawal from its territory of the CIS peacekeeping force. The guidelines, which were approved at the CIS Foreign Ministers' meeting on March 5th, will be put to a vote at the next CIS summit on April 29th. Russian President YELTSIN's support for these guidelines has not been endorsed. Further aggravating relations between Georgia and Russia, the Georgian Foreign Ministry criticized the Russian State Duma's proposal to debate the legitimacy of Moscow's decision to hand over to Tblisi some Russian facilities in Georgia and several billion dollars in debt for military equipment. The Russian Foreign Ministry denounced the criticism calling it an "irresponsible" campaign aimed to label Russia as the "external enemy" responsible for all of Georgia's internal problems, RFE/RL Newsline reported.

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

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