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, May 19, 1998

Coal Miners Block Railroad and Highway

· Unpaid striking coalminers in the south of Kemerovo Region and workers from other enterprises and organizations plan to extend their blockade to the so-called large Siberian railway ring road within the boundaries of the city of Prokopyevsk on Wednesday morning. This decision was taken by delegates to Tuesday's conference of work collectives in Prokopyevsk. The miners' demands for bak wages were supported by the local authorities and trade unions. If the railway in the area of Prokopyevsk is cut off, long-distance trains would be brought to a standstill throughout Western Siberia altogether. For five days, trains circumvented Anzhero-Sudzhensk, where TransSiberian railway have been blockaded. About 100 coal miners of the Severnaya mine blocked the federal highway connecting the cities of Kungur and Solikamsk in the Urals on Monday and halted traffic on the Northern Caucasian railroad near the city of Shakhty. The decision to stage the protest was prompted by a visit to the mine by a delegation of the Russian Fuel and Energy Ministry's officials, the action group leader, electrician Andrei SOKOLOV said. Dozens of mines have been shut since early May, when miners went on strike to demand back wages. The government estimates that miners are owed 8.7 billion rubles.

In an effort to stabilize the situation in Russia's coal-mining regions, which are currently being swept by social unrest, strikes, and blockades, Russian Deputy Prime Minister Boris NEMTSOV met the gover

Russian Federation

Politics

Russia Expanding Nuclear Cooperation

· Ignoring strong criticism from the US and Israel, Russian Atomic Energy Minister Yevgeny ADAMOV and Iranian Vice President Gholamreza AGHAZADEH have agree to expand their cooperation in the field of nuclear technology for nonmilitary purposes. Both ADAMOV and AGHAZADEH stressed that their nuclear cooperation does not violate any international agreement on the nonproliferation of weapons of mass destruction. Russia has been working with Iran on a controversial turn-key Bushehr reactor project, costing $850 million, which Iran says it needs the Bushehr to meet its energy needs. ADAMOV reiterated that the plant can not be used for military purposes. AGHAZADEH added that Iran will not attempt to make nuclear weapons and opposed nuclear tests by any country. Moscow denies charges by the US that it is selling technology to Iran which could be used to develop nuclear weapons. AGHAZADEH explained that the US is using a double standard to isolate Iran. He said, "If the United States really wants to uphold the principle of nonproliferation of nuclear weapons it should not furnish Israel with such arms." During his visit the Iranian Vice President toured the Balakua plant in Saratov, which is similar to the one being built in Bushehr.

Meanwhile, the Russian media reported that ADAMOV said that India's recent nuclear tests will not affect his ministry's plans to construct a nuclear power plant in Kudankulam, India. He said that if Russia were to annul its contract for the plant, it would look as if Russia was imposing sanctions against India, "which is not Russia's stance." Atomic Energy Ministry press secretary KAUROV said that the ministry does not welcome India's tests, it distinguishes between peaceful and military uses of nuclear energy.

Today's News Highlights

Russia

Gov't Outlines Economic Tasks

Inflation Expected To Drop

Mass Media Reorganization

European Republics

WB Criticizes Belarus

South Caucasus & Central Asia

Baku-Ceyhan Mem. of Intent

Armen.Pres. Appoints Advisors

Uzbek Seeks Gazprom's OK

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Tuesday

May 19, 1998

Intercon's Daily

nors of such regions today. The meeting was held in pursuance of a government decision aiming to appease the striking miners in Kuzbass, Siberia, and Inta, the Komi republic, as well as other areas of importance to the coal industry. NEMTSOV is head of the interdepartmental commission on social and economic problems of the coal-mining regions which have been increasingly supplementing their economic demands, mainly for the payment of wage arrears, with political demands and outspoken criticism of the federal center. He noted that since January the government has earmarked 1.6 billion rubles to sustain the coal industry. In May, the government set aside 385 million rubles and decided to subsize the recreation fee of coalminer's children to camp. NEMTSOV said the situation remains, "very difficult," adding that, "the federal government is unable to cope alone with the situation without the support of the regional authorities, without putting things in order in the industry with mediators."

Rus-Vietnam Bilateral Trade To Increase

· Vietnam and Russia have agreed to further cooperation in trade, energy, chemicals, and farm produce processing. Vietnam's Deputy Prime Minister and Foreign Minister Nguyen Manh CAM said that during his visit to Russia last week, both sides discussed how to consolidate and develop the time-honored traditional cooperation between the two countries. Projects for cooperation in science, technology, culture and education were also discussed. According to Zarubezhneft management on Monday a framework agreement between the Russian Zarubezhneft foreign economic organization and the Vietnamese PetroVietnam Company on the construction of Vietnam's first oil processing plant in Dung Quat is to be signed in Hanoi on May 22nd. Zarubezhneft officials hope that the matter concerning the construction of the plant, which is planned to come into operation in the year 2001, will be raised at the intergovernmental level. "Counting on long-term and strategic cooperation with the Vietnamese side, we would like to link the signing of the agreement on the construction of the oil processing plant with a capacity of 6.5 million tons of a year with a simultaneous prolongation for ten years of the VietSovpetro joint venture agreement, which expires in the year 2010," according to a Zarubezhneft executive's statement. Russian Foreign Minister Yevgeny PRIMAKOV expects that bilateral trade,

about $300 million in 1997, will increase 10 times in the coming years. Methods of payment is one of the most difficult problems in expanding the trade ties, CAM noted, adding that he discussed with Russian leaders possible solutions to the problems. CAM and his Russian counterpart also exchanged views on regional and international issues of common concern. The two sides reached an agreement on the establishment of a Fund for support of exports. Commenting on the results of the meeting with Chairman of the Russian State Duma Gennady SELEZNYOV, CAM stressed the importance of interparliamentary contacts in relations between the two countries. He informed that SELEZNYOV had proposed to deputies of the National Assembly of Vietnam to take part in the International parliamentary conference scheduled for 1999 in Moscow.

Economy

Ruble = 6,146/$1.00 (NY rate)

Ruble = 6,155/$1.00 (CB rate)

Ruble = 6,135|6,175/$1.00 (buy|sell rates)

New Government Outlines Economic Priorities

· The Russian government has outlined main priorities in economic politics, proceeding from basic principles of economic politics contained in the state of the nation address delivered by the Russian President Boris YELTSIN to the Federal Assembly in February. These priorities, released on Monday, envisage declining state loans, lengthening the average term for which loans are borrowed, so as to halt the growth of state debt and ensure stabilization of its share in the gross domestic product, cutting expenditures on servicing the state debt by 4.2 percent of the gross domestic product by 1999 and by 3.6 percent by 2000, respectively.

A task is to lower state bond interest rates to the level ensuring normal crediting of the industry so that annual interest rates do not exceed 20 percent by the end of 1998. It was stressed that more effective control was needed of budgetary expenditures and ensuring an increase in budgetary revenues which will enable the reduction of the federal budget deficit from 3.6 percent of the gross domestic product in 1999 to 2.5 percent of the gross domestic product in 2000. Another task set forth is to ensure a stable ruble exchange rate, following the parameters of earlier announced policy of the ruble corridor and the

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Tuesday

May 19, 1998

Intercon's Daily

parameters of the monetary program outlined in a joint statement by the Russian government and the Central Bank. In the first quarter of this year the taxation revenues to the state budget were 16 percent higher than in the same period last year. The deficit of the federal budget was estimated at 3.5 percent of the gross domestic product.

Prime Minister Sergei KIRIYENKO believes that the economic priorities statement will allow all the market players, both state-run and private companies, to clearly understand and see the government's policy until the end of this year. The Prime Minister warned against treating Monday's economic statement as a hurried response to the events on Russia's financial market. "As a matter of principle, the government will not respond to changes in the situation on the market or in political life," he pointed out.

Inflation Expected To Drop

· In 1998, inflation rates are expected to be around six percent, which is almost two times less than in 1997. Average monthly inflation rates are expected to go down from 0.9 to 0.5 percent against 1997, the Russian Economics Ministry said in its macroeconomics survey. According to the State Statistics Committee, over the past four months inflation rates had been gradually going down from 1.5 percent in January to 0.4 percent in April. Ministry economists expect inflation rates to remain within the range of 0.2 to 0.3 percent in the next two to three months. In August and September a seasonable discount in consumer prices may be expected. In the fourth quarter of 1998, monthly inflation rates may go up to 0.5 to 0.6 percent because of seasonable price increases for foodstuffs and public utilities services. Wholesale prices in the industry are to be lower than on the consumer market. On average, wholesale price increases are expected to reach 4.2 percent in 1998. In January to April, 1998 wholesale prices grew by 1.3 percent, while consumer prices rose by 3.5 percent. Growth of per capita income in 1998 will slow down and is expected to make up 2.5 percent against 3.4 percent in 1997. Since January, per capita income has dropped by 7.4 percent.

Russian Exports Fall, Imports Rise

· In the first quarter of 1998, Russia's exports decreased by 14.4 percent as compared to the same period in 1997, mainly due to the fall in the world prices. At the same time, Russia's imports increased

by 9.6 percent. The Russian Economy Ministry predicts that Russia's exports will fall by two percent, while its imports will increase by 5.5 percent in 1998 as compared to last year. The pace of the export decline will stay at last year's level, while the import growth will be slower as compared to the nine percent in 1997. The economists also predict that the currency revenues from exports of oil and oil products may fall by $2.7 billion to $ 4.1 billion in 1998.

Business

Mass Media Reorganization

· Deputy Prime Minister Oleg SYSUYEV today introduced Eduard GINDELEYEV as the new chairman of the board of governors of the Russian news agency RIA Vesti. SYSUYEV, in charge of mass media in the government, cited a recent presidential decree which mandated an integral technological complex of electronic mass media. On Monday, the government issued a decree setting up a state-run unitary agency to be called RIA Vesti, a subsidiary of the Russian State Television and Radio Broadcasting Company, VGTRK. The decree also dismissed Vladimir MARKOV and appointed GINDELEYEV. Nikolai SVANIDZE stepped down as chairman of VGTRK. SVANIDZE said his decision had been prompted by the reorganization of VGTRK into a large media holding. "I thought it necessary to clear the field to make it easier for the president and the government to adopt personnel decisions," he said. Presenting GINDELEYEV, SYSUYEV said, "With the creation of the single information complex with the new name, RIA Vesti will retain, I hope, the good old traditions and will take a worthy place in the information market." He added that, "resources of the state for support of mass media are rather limited, and the creation of this holding will help the mass media work successfully, do business well and be useful to the state." GINDELEYEV remains VGTRK's first deputy chairman for the benefit of the holding's status. "Our main goal in creating this holding is to set transparent rules of the game for state-owned mass media and help them act successfully in the conditions of our complicated market."

European Republics

World Bank Criticizes Belarus Slow Reforms

· The World Bank has criticized Belarus for not implementing economic reforms. Director of the

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Bank's Belarus and Ukraine Department Paul SIEGELBAUM said, "The crucial issue that we feel is central to accelerating reform of the Belarus economy is the exchange rate." World Bank official David PHILIPS said that the "multiplicity and distortion" of the exchange rate has a negative impact on the balance of payments, prevents the accumulation of hard-currency reserves, and inaccurately reflected the situation in trade and production. He added that the mandatory sale of 30 percent of hard-currency export revenue to the state at an undercut exchange rate constitutes a fine imposed on exporters. Western economists have said that Belarus President Alexander LUKASHENKO's insistence on imposing Soviet-style controls on the economy have brought the nation close to economic meltdown. Earlier this month, Belarus Central Bank chairman Pytor PROKOPOVICH told investors at the annual meeting of the European Bank for Reconstruction and Development that his main task was to maintain economic growth by freeing up exchange controls and liberalize prices. So, far there has been no change in economic reforms.

South Caucasus & Central Asia

Turkey, Georgia, Azeri Support Baku-Ceyhan

· Turkey, Azerbaijan and Georgia on Friday signed a memorandum of intent in Istanbul to support the Baku-Ceyhan project of the Caspian oil delivery to world markets. The document, approved on results of a three-day tripartite meeting, was signed by Turkish Minister of Energy and Natural Resources Mustafa Cumhur ERSUEMER, Azerbaijan ambassador to Ankara Mamed ALIYEV and head of the Georgian national oil company Gia CHANTURIA. The Presidents of the three countries are to sign the official agreement in September, forming thebasis for a tripartite intergovernmental agreement. The Baku-Ceyhan project will cost $2.5 billion, but the sum may be cut to $1.6 billions thanks to the construction of an oil pipeline on Turkish territory. The1,730-kilometers-long pipeline will deliver 45 to 50 million tons of oil per year.

Armenian President Appoints Advisors

· Armenian President Robert KOCHARYAN appointed the leaders of Armenia's leading political parties as his advisors, Itar-Tass reported. Vagan OGANESYAN of the Dashnaktsutyun Party will act as the President's public relations advisor. Aram SARKISYAN of the Democratic Party will advise the Armenian President on international affairs. Paruyr AYRIKYAN, who heads the Self- Determination Association, will be in charge of the state, legal and constitutional reform and head the President's human rights commission. Grant VOSKANYAN of the Communist Party will head the commission for pardons. Arutyun KARAPETYAN will advise KOCHARYAN and act as the head of the information and book publishing directorate under the government of Armenia. David VARTANYAN, one of the radical opposition leaders and a members of the Karabakh committee, was appointed as the leader of the President's control service.

Uzbek Seeks Gazprom's Transit Approval

· Uzbekistan and US company Enron Oil and Gas Co., developing Uzbekistan's gas riches, hope that Russia's Gazprom will approve its proposal to transport Uzbek gas via Russian pipelines. Uzbekistan and Enron agreed last year to set up a joint venture for exploration and production of up to 6 billion cubic meter a year of natural gas in Bukhara and Surkhan-Darya regions. The work of the joint venture has been delayed because of the lack of pipeline capacity needed to export the planned output. Deputy head of State oil and gas company Uzbekneftegaz Khudaikul DZHUMAYEV said, "This is why we and Enron have worked out a detailed business plan on switching Gazprom to the project." He hopes that Gazprom will reach a decision this year. Enron and Uzbek officials have said that Uzbekistan's natural gas may be exported to Europe through Russian pipelines rather than to Kazakhstan, Kyrgyzstan, and Tajikistan. Uzbekistan plans to increase gas output to 54 billion cubic meters in 1998, compared to 51 billion cubic meters in 1997.

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

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