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

Thursday, April 9, 1998

first quarter revenues were enough to cover the, "levels of all budgets, local, regional and Federal." Therefore, SYSUYEV said, "there just cannot be any delays in the payment of wages anywhere at all." Acting Prime Minister Sergei KIRIYENKO stated at the government meeting that, "The Russian government has transferred 700 million new rubles as first tranches to Russian regions where the situation with payment of wages to public sector workers is especially serious." Commenting on the All-Russian protest action by trade unions KIRIYENKO emphasized that, "The government is obliged to resolve this question," of unpaid wages.

Russia-Kazakhstan Agree on Caspian

· Russian Presidents Boris YELTSIN and Nursultan NAZARBAYEV of Kazakhstan on Thursday agreed to finalize work on the determination of the status of the Caspian Sea, which would make it possible to begin full-scale development of Caspian deposits by April 28th. Russia earlier opposed plans to divide the Caspian basin and bottom into national sectors and was backed by Iran. However, Russia changed its stance and agreed with Azerbaijan and Kazakhstan that the sea bottom, not the surface should be mapped into national shares to leave the surface free for navigation and joint environmental programs. The change of Russia's mind appears to be largely underlined by its new geological findings suggesting considerable oil deposits in the Volga delta and in the adjacent bottom sector of the Caspian Sea. The deposits are estimated to be well above the store of

Russian Federation

Politics

Protest Over Wage Arrears and Worker Rights

· A nationwide protest action was held today all over Russia— in Moscow, Vladivostock, Primorye, Kamchatka, Sakhalin, Irkutsk, Kuril islands and other regions, by Russian labor unions with the participation of some political parties and movements under the slogan "Wage, employment, legality!" It is estimated that hundreds of thousand demonstrators demanded wage arrears and other social allowances to be paid. Wage arrears across Russia including the private sector total 58 billion rubles or $9.6 billion. In Vladivostok protesters carried posters stating not only economic demands but also strongly critical remarks with regard to both Federal and local authorities. Protesters called for Russian President Boris YELTSIN to step down. No incidents of violating public order have been reported. The Russian Interior Ministry only provided the required measures for the cases of mass gatherings outdoors for today's protest actions staged by Russian labor unions. On Wednesday, medical workers stages a similar protest. In Moscow doctors earn as little as $50 per month, which is well below the national average. Doctors in Vladivostock threatened to halt all treatment even emergencies nextweek unless they received $1 million in back wages. Presidential press secretary Sergei YASTRZHEMBSKY said, "The president seriously treats these demands, since if quite legitimate economic and social requirements are isolated from the political claptrap which the opposition tries to raise, protesters are right. They earned their money and must receive them." He emphasized that, "the sooner a new government is formed, the quicker it starts paying debts."

Acting deputy prime minister Oleg SYSUYEV, said at the close of Thursday's government meeting, that

Today's News Highlights

Russia

Russia To Cut Oil Exports

March Revenuse Reach 20B

Rosneft Sale Continues

European Republics

Rus-Ukraine Gas Deal Drafted

Sino-Ukraine Defense Ministers

Latvia Calls Actions Sanctions

Latvian Party Withdraws

South Caucasus & Central Asia

Duma Overturns Georg.Tansfer

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Azerbaijan's offshore Caspian oil fields. NAZARBAYEV after meeting with YELTSIN said, "we do not divide water, we divide only the bottom" at equal distances from coasts. The agreement appears to be the first step towards a consensus on the Caspian Sea between Russia, Kazakhstan, Azerbaijan, Turkmenistan and Iran, whose borders open on Caspian coasts. NAZARBAYEV added that Russia and Kazakhstan, "will also conclude an agreement on preservation of ecological and biological resources." NAZARBAYEV invited YELTSIN would to Kazakhstan in June or July, during which a Russian-Kazakhstan cooperation treaty and a package of economic deals will be signed, including a contract for transportation of Kazakhstan's oil through Russia.

NAZARBAYEV on Wednesday met with acting deputy prime minister of Russia in charge of CIS affairs Ivan RYBKIN in the capital of Kazakhstan. The sides discussed a number of issues included in the agenda of the April summit of the Commonwealth in Moscow, and problems of bilateral relations between Kazakhstan and Russia. RYBKIN stated that there had not been a single aspect of mutual relations between the two countries, the activities of the Commonwealth and the Customs Union, which had not been discussed during his working visit to the new capital of Kazakhstan. From Akmola RYBKIN left for Yerevan to attend the inauguration of Robert KOCHARYAN as President of Armenia.

Russia Agrees To Cut Oil exports

· Russian First Deputy Prime Minister Boris NEMTSOV said that Russia would cut oil exports by 2.3 percent or 61,000 barrels per day and petroleum product exports by 3.2 percent or 4,900 tons per day in an effort to cut sagging oil prices. A government spokesman says the move is purely political, adding that Russia would, "watch for reaction from OPEC [Organization of Petroleum Exporting Countries] members." NEMTSOV stated that, "This decision was unanimously supported by government representatives and the oil business." NEMTSOV noted that the Russian government has made two important decisions to combat the world oil crisis. The excise tax on the transportation of oil was abolished and the foreign exchange component of the Transneft tariff was been halved. Oil analysts agree that the proposed symbolic cuts would not significantly dent Russia's export revenues. Russia, which is not an

OPEC member, is the world's third largest exporter of oil and its oil sales represents 40 percent of government revenues. The government estimates it is losing as much as $24 million a day in revenues because of the oil price slump. NEMTSOV has invited OPEC officials to visit Moscow on Saturday for talks on a coordinated move to boost prices, possibly by cutting production. OPEC had asked Russia to cut oil exports to 100,000 barrels per day.

Economy

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

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

Ruble = 6,107|6,135/$1.00 (buy|sell rates)

March Budget Revenues Reach 20 Billion Rubles

· Acting Economics Minister Yakov URINSON on Wednesday reported that budget revenues in March reached 20.247 billion rubles. He said that the government commission for ensuring budget revenues, which he chairs, is designed to control the implementation of monthly and quarterly revenue plans, coordinate the activities of all departments engaged in this process, find the bottlenecks, and make proposals on measures aimed at increasing tax revenues and other payments to the budget. The State Tax Service, the State Customs Committee, the Ministry of State Property and the Russian Federal Property Fund gave reports on the economy at the commission's meeting.

Business

Rosneft Sale Continues Despite High Price Tag

· LUKoil Vice-President Leonid FEDUN on Wednesday said that LUKoil was not planning to drop its bid for a stake in the Rosneft company, Russia's last major oil company subject to privatization. He dismissed that presumption that its allies in the project Gazprom or Royal Dutch Shell might withdraw from the bid. "The company has no plans to change partners in the Rosneft privatization tender whereas the partnership composition has remained unchanged," he said. However, he noted that the starting price of $2.5 billion offered by the government for the 75 percent stake in Rosneft exceeds the real one by $900 million. FEDUN said the real price of the block of 75 percent plus one share of Rosneft company is $1.6 billion. Meanwhile, Moscow Mayor Yuri LUZHKOV announced that

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Moscow will not participate in the Rosneft sale. LUZHKOV said the Moscow government is uninterested in Rosneft which owes Moscow 100 billion old rubles. He said, "We want the company to repay its debt to us." LUZHKOV believes that the state retain keep 50 percent shares of the company. The Russian government remains firm in its estimated price tag and terms of the tender. All bids must be received before May 26th the closing date.

relations with Russia and other neighboring countries, and the establishment of a partnership between the Ukraine and the North Atlantic Treaty Organization. He said that the development of relations between the two countries and their armed forces is important to Ukraine's political life.

Latvian Calls Russia's Measures: Sanctions

· Russia's acting Prime Minister Sergei KIRIYENKO said Wednesday that the Russian government has taken economic measures against on Latvia to support the ethnic Russians living in the Baltic nation. The measures, including strictly limiting oil supply to Latvia and imposing restrictions on Latvian goods and labor, were formulated in line with instructions by Russian President Boris YELTSIN, KIRIYENKO said. Acting First Deputy Prime Minister Boris NEMTSOV said Russian oil companies considerably cut oil supplies to Latvia on Wednesday. "Most certainly Russia has other ways of influencing Latvia as well." KIRIYENKO threatened that Russia will impose sanctions on Latvia if Latvia does not alter the policy against its Russian speakers. Russian president's press secretary Sergei YASTRZHEMBSKY emphasized that, "It would be ridiculous to regard Russia's desire to diversify its relations with the West and Europe from a point of view of any anti-Latvian aspirations of Moscow." Relations between Russia and Latvia have rapidly soured due to a dispute over the rights of the 700,000 ethnic Russians in Latvia. A bomb that went off near the Russian Embassy in Riga, Latvia's capital, early this month prompted Moscow's denunciation. In early March, the Latvia police forcefully dispersed a Russian-speaking pensioners rally in the city.

Although Russia has been careful to term its action as measures and not sanctions, Latvian Ambassador to Russia Imant DAUDIS said today, "The political stand-off between Russia and Latvia has grown to relations that can be called economic sanctions on the part of Russia." DAUDIS said Latvia wants Russia to reverse the "sanctions." He said a quarter of Latvia's national budget is revenue from the transit of Russia's oil exports through Latvian ports. He said, "if we have difficulties with Russia, we shall seek support of the European Union." Latvian Prime Minister Guntars KRASTS noted that he saw no impending difficulties with energy due to Russia's limits, as Russia's exports can be replaced by West

European Republics

Ukraine-Rus Gas Agreement Drafted

· Chairman of the Ukrainian State Oil and Gas Committee Mikhail KOVALKO said Tuesday that Ukraine is drawing up a draft agreement on the deliveries of Russian gas for the period up to 2007. He noted that 15.3 billion cubic meters of gas, costing $950 million, were delivered to the population of Ukraine in the first quarter of 1998, but money was paid only for 13.5 percent of the consumed fuel. KOVALKO said that Ukraine was planning to foot all the bill for Russian gas by the summer of 1998. Timetables for the settlement of the debt were drawn up. The biggest debtors include Motor Sich Company, Single Power System of Ukraine, Intergaz, Sigma, and Ukrzarubezhneftegaz. He noted that their total debt amounted to $462 million, while the debt of Ukrgazprom is $483 million.

Sino-Ukraine Defense Ministers Meet

· Chinese Defense Minister CHI Haotian met with his Ukrainian counterpart Alexander KUZMUK in Beijing on Monday. CHI expressed his conviction that KUZMUK's visit will inject new impetus into the growth of friendly relations between the two countries oriented toward the 21st century. He said that joint efforts have enabled Ukraine and China to smoothly develop bilateral ties, and that facts have proved that the further development of relations between the two countries will serve the fundamental interests of both and benefit peace, stability and development in Asia, Europe and the world at large. CHI said the Chinese army would like to develop a friendly relationship with the Ukrainian military. The Chinese People's Liberation Army will implement the decision announced by Chinese President JIANG Zemin to cut the armed forces by 500,000 over the next three years, CHI added. KUZMUK briefed CHI on Ukraine's domestic situation, army-building, its

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ern. Latvian Foreign Minister Valdis BIRKAVS said on Wednesday that, "The government of Latvia should be prepared to support, if need be, entrepreneurs in their re-orientation from Russia to other markets." Comment: The bombing near the Russian embassy, at which a Latvian Nationalist flag was found, and a bomb scare at the Israeli Embassy today, appear to be part of a pattern of events which have taken place in the Baltic nations in the past. These incidents which prompt international responses but do not harm anyone, resemble KGB covert actions, which led to the deployment of Russian troops to combat opposition groups in the Baltics during the Soviet period. In some quarters, many regard these provocation as being designed by Moscow and executed by Russian residents in Latvia. One possible reason for an increase in such events, would be to show the international community, specifically the West and Europe, that Latvia is unfit to become a member of its organizations. This conflict is being exploited by Russian Presidential hopefuls, including Moscow Mayor Yuri LUZHKOV.

LUZHKOV has accused Latvia of genocide against

Russian ethic speakers in Latvia. His extreme and provocative remarks are fueling the tensions between Russia and Latvia.

Saimnieks Party Withdraws From Government

· The largest ruling party in Latvia's coalition government on Wednesday withdrew its ministers from the government. A spokesman from the leftist Democratic Party Saimnieks announced today that three reason have led to this decision: the infighting in the coalition resulting from the slow pace of privatization, sacking of the Economic Minister Atis SAUSNITIS a party member, and pressure from the international community regarding Latvia's row with Russia over rights for the large Russian minority and the controversial reunion of Latvian SS veterans. After Economics Minister Atis SAUSNITIS was dismissed by KRASTS, four other ministers affiliated with the party resigned. The coalition, made up of six parties, has been in power since early 1996. The

Democratic Party Saimnieks is not the party of the Prime Minister Guntars KRASTS, who is responsible for sacking SAUSNITIS. Latvia's Ambassador to Russia Imant DAUDIS today said the resignation of the Latvian government is possible. However, Latvian Prime Minister Guntars KRASTS reiterated that his cabinet can proceed after becoming a minority government. He it was "unforgivable" for a party to withdraw its ministers when the country is in a "complicated situation." KRASTS said he had a backing of President Guntis ULMANIS, who called the party's actions as "cowardice."

South Caucasus & Central Asia

Duma Bans Base Transfer in Georgia

· The Russian State Duma, by a vote of 234 to zero with five abstentions, called on President Boris YELTSIN to annual a March 24th instruction from acting Prime Minister Sergei KIRIYENKO calling for the country's defense ministry to transfer control of the land occupied by Russian military bases in Georgia. KIRIYENKO's decision was based on the still unratified agreements between Moscow and Tblisi on the status of Russian forces in Georgia. During the debate on the Duma resolution, chairman of the CIS Affairs Committee Georgi TIKHONOV suggested that NATO troops could be deployed at those bases if Russia transferred the facilities, RFE/RL Newsline reported. At present, no legal basis for the presence of Russian troops and bases in Georgia exists. The illegal status of the bases, makes the Duma vote strange at the very least. Ministers have condemned KIRIYENKO's decision to transfer property as unconstitutional. Intercon sources also report that the Russian Foreign Ministry has issued a statement protesting the Civic Union Party's actions of spreading anti-Russian views in Georgia. Chairman of the Georgian Parliament Zurab ZHVANIA is also leader of the Civic Union Party. Comment: The statement appear to be a response to ZHVANIA's visit to the US last week. During his visit, ZHVANIA spoke out against Russia's interference in the internal affairs of Georgia.

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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