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

Wednesday, May 20, 1998

Russian Federation

Politics

Communists Start Impeachment Proceedings

· Communist Party leader Gennady ZYUGANOV said his party and allies, People's Patriotic Union, People's Power and the Agrarian Party, have decided to support Siberian coal miners who have called for the impeachment of Russian President Boris YELTSIN. The miners accuse YELTSIN of, "destroying the country and its economy." ZYUGANOV, who in the past has launched similar impeachment campaigns which failed, has collected 177 signatures from deputies in the Russian State Duma. Under the constitution, the lengthy multi-stages impeachment process may be started if 150 deputies demand it. The impeachment bill will be placed on the Russian State Duma's agenda, where it must be approved by a two-thirds majority. After Duma approval, the bill must be confirmed by the Constitutional and Supreme Courts, and win a two-thirds majority in the Federation Council. Most of these government bodies, except the Duma, cooperate with Kremlin, making the passage of the bill unlikely. YELTSIN's press secretary Sergei YASTRZHEMBSKY called the Communist threat of impeachment a, "futile affair." Liberal Democratic Party leader Vladimir ZHIRINOVSKY has said his faction will not support the impeachment bill. However, with coal miners blockading crucial railways, the Russian stock market plunge earlier this week, and questions surrounding YELTSIN's health and mental capacities, senior Communists are demanding that the impeachment process begin as early as Thursday and be completed by Friday.

Russian Railways Hurt By Miners' Strike

· Miners of Anzhero-Sudzhensk, seeking to get wage debts by protests blocking Russia's Trans-Siberian railroad, are causing considerable losses to

the railways and railway families. Head of the West-Siberian railway Vladimir STAROSTENKO went to the Kuznetsk coal basin (Kuzbass) today to try to convince miners on behalf of railroad workers to stop blocking rail traffic. STAROSTENKO said that a mammoth jam of over 100 trains with vitally important freight, including humanitarian aid, chemicals, and weapons, has developed on the Trans-Siberian trunk railway. As a result of the protest action by Kuzbass miners, the West-Siberian railway daily loses three million rubles, let alone major hard currency fines which the railway will have to pay for undelivered cargoes under contracts with foreign firms. Passengers have returned over 1,500 tickets, and another 8,000 tickets lie unwanted. Kemerovo Governor Aman TULEEV has declared a state of emergency in the region of Prokopevsk due to the railway blockades. The Russian Railroad ministry estimated that the losses are more substantial. As of today a total of 296 passenger and freight trains were delayed because of blockades, indirect losses as a result of the non-fulfilment of contracts totaled 12.7 million rubles ($2.1 million), and passenger traffic remains blocked on the railway sections connecting Novosibirsk, Krasnoyarsk and Abakan. Prime Minister Sergei KIRIYENKO has ordered Deputy Prime Ministers Oleg SYSUYEV and Boris NEMTSOV to cancel planned trips abroad and visit regions affected by the strike. The Russian State Duma today has called for President Boris YELTSIN to convene an emergency joint session of the Duma and the Federations council to discuss the situa

Today's News Highlights

Russia

CB Raises Interest Rates

Gazprom Focuses Domestically

Unexim To Bid On Rosneft?

European Republics

Belarus-Russian Union Favored

Ukraine-Azeri Oil Deals?

South Caucasus & Central Asia

Azeri Forecasts $9B Oil Deals

Uzbek Delays Sell-offs

WB Pledges $610M To Kyrgyz

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May 20, 1998

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tion in the coal industry.

Otto, Nemtsov- OPEC Chief Meet

· The Organization of Petroleum Exporting Countries (OPEC) secretary general Rilwanu LUKMAN after meeting with Russia's acting Fuel and Energy Minister Viktor OTTO and Deputy Prime Minister Boris NEMTSOV said, "We have agreed to coordinate efforts in stabilizing petroleum markets. With this end in view, we shall exchange information and hold regular meetings. Too low prices are ruinous to all [petroleum producing countries]. Therefore, actions should be coordinated so that the economies and people of our countries would not suffer. NEMTSOV noted that at the beginning of April, Russia had decided to reduce the export of oil and oil products by one percent of the production level after similar decisions had been taken by OPEC countries. Due to that, oil prices went up by $2 per barrel in the March to May period. During his visit, LUKMAN is scheduled to meet with representatives of Russia's major oil companies. Russia will take part in a session of OPEC in June in Vienna to discuss world oil markets. The fall of oil prices has hurt profits of Russian producers', who are major contributors to the budget, which is already facing a revenue squeeze due to poor tax collection rates and rising debt servicing costs.

Economy

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

Ruble = 6,156/$1.00 (CB rate)

Ruble = 6,135|6,177/$1.00 (buy|sell rates)

CB Raises Interest Rates To 50 Percent

· Russia's Central Bank Tuesday raised interest rates to 50 percent in an effort to shore up the ruble following pressure placed on state treasury bonds and currency. The Central Bank raised its refinancing rates from 30 percent to 50 percent, their highest levels since December 1996. It also increased its Lombard rate, its lending rate to commercial banks, from 40 percent to 50 percent. The raising of the refinancing rate, which acts as a cap on Treasury bill yields, follows a sharp rise in yields due to investors off-loading company stocks for government bonds. Central Bank Chairman Sergei DUBININ blames western companies for "speculative attacks" on the ruble. DUBININ called on the government to reconsider its relationships with foreign financial institu

tions that have been involved in these attacks. "It's hard to imagine that some Western investment institutions can simultaneously be both a consultant to the government for some deal on distributing Eurobonds and so on and be involved in the collapse of the government securities market and national currency." He noted that the government has spent $520 million propping up the ruble in the past week. The deputy chairman of the Central Bank Alexander POTEMKIN said he hopes the rise in interest rates would convince investors that there was no serious threat to the ruble exchange rate or to the monetary policy of Russia.

Rus-Greek Turnover Forecast To Reach $1B

· Russian-Greek bilateral trade turnover is predicted to reach $1 billion in 1998, a 10 percent rise since 1997 and a continuation of an upward trend since 1993. Konstantinos CHARATSARIS, counselor of the embassy's economic and trade department, said that two groups of Greek businessmen will visit Moscow and St. Petersburg in June to voice their investment proposals in construction, ship-repairs, and light and food industries before Russian partners. The nations are running two major investment projects, the construction of an alumina works and a gas pipeline for Russian gas supplies in Greece, the diplomat said. Preparations, for the reconstruction of a Russian Black Sea port in the Krasnodar region, are under way. The Krasnodar region has received a $10 million loan from the Greek government for the purchase of Greece-made equipment and consumer goods, CHARATSARIS said.

Business

CanBaikal Announces New Russian Strategy

· CanBaikal Resources Inc. Tuesday announced a new strategy to build a significant reserve base in Russia. CanBaikal is evaluating two large oil and gas properties in the Khanty Mansisyk region of western Siberia, which have been offered by Yukos Oil Ltd. The properties are adjacent to CanBaikal's license block and contain recoverable reserves in excess of 200 million barrels of oil, as estimated by Yukos. The properties are in excess of 400 square kilometers each and currently are producing over 16,000 barrels of oil per day with a planned maximum of 60,000 billion barrels per day. Chairman and CEO of CanBaikal Robert BOLTON stated, "The opportunity offered to us by Yukos will allow us to signifi

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cantly shorten our time frame to generate ongoing cash flow and to add significant reserves to our base currently under license. The proximity of these blocks to our existing block will also allow us to be focused in the technology of oil recovery in one area of the Siberian basin and enable us to minimize our infrastructure costs. Our detailed technical review will start immediately and we will begin negotiating an arrangement to acquire the currently economic reserves as soon as possible." CanBaikal expects the technical evaluation of the properties to take up to three months.

Gazprom Focuses On Domestic Market

· Chairman of Russia's gas giant Gazprom Rem VYAKHIREV said on Tuesday that Gazprom will review the structure of its export and focus on the Russian market. "Regardless of its love to and friendship with the West, Russia will not release unlimited quantities of fuels onto foreign markets," VYAKHIREV said. He assured the industrial partners that among foreign markets, the European Union (EU) remains the most important for Gazprom. The Russian gas giant satisfies about a third of EU demands in energy resources. VYAKHIREV reiterated that the strategic directions for Russia will be to concentrate on the domestic market and on the European one for the, "well-being of the new Europe." According to VYAKHIREV, Gazprom will increase gas supplies to the European Union through a network of joint venture set up in EU countries.

Uneximbank To Bid on Rosneft?

· Russia's Uneximbank's chief Vladimir POTANIN stated that Unexim has not made a final decision whether to take part in the forthcoming contest for a 75 percent plus one stake in the oil company Rosneft. In making such decisions one should bear in mind the unfavorable situation in Russian stock markets, POTANIN said. At the same time, he dismissed reports that Uneximbank had held talks with CS First Boston as a potential partner. However, there was no indication that British Petroleum may be Uneximbank's sole ally in the Rosneft auction. Many competitors have dropped from the auction due to the high starting price approved by the government.

of Belarus view the Charter of the Belarus-Russian Union, signed a year ago, as an important and necessary document. According to the results of public opinion poll conducted by the Russian Center for Public Opinion Studies, some 38 percent of Russians favor the countries' unification into one state. Over 60 percent of Russians and 50 percent of Belarus have always viewed the two independent countries as one state. A total of 62 percent of Russians and an equal number of Belarus would like Ukraine to join the Union, and 43 percent of Russians and 38 percent of Belarus would welcome Kazakhstan in the Union. More than one third of polled Russians found it difficult to estimate the political situation in Belarus. Only 19 percent of the polled think that, "the dictatorship is coming to exist" in the neighbor-republic. Almost one fourth of the respondents think that President Alexander LUKASHENKO has managed to preserve the former political system, but given it a new name. A total of 10 percent of Russians believe that democracy is gradually developing in Belarus. A considerable part of residents of both countries think positively about integration and common citizenship.

Ukraine-Azerbaijan Discuss Oil Exports

· Ukraine and Azerbaijan State Oil Co. on Monday held talks on Ukraine's possible participation in Caspian oil exports. Ukraine planned to meet with the Western oil producing firms involved in the development of offshore oil and gas filed in the Azeri sector of the Caspian Sea. Ukraine hopes to export crude through a pipeline that will link the Ukrainian Black Sea Port of Odessa with the Druzba pipeline.

South Caucasus & Central Asia

Azerbaijan Expects $9 Billion in New Oil Deals

· An official of Azerbaijan's state oil company Socar said that Azerbaijan hopes to sign more than $9 billion in new contracts with foreign firms this year to develop its Caspian basin oil and gas reserves. The six new prospective deals, all covering 25 year periods, signal a continuation of swift reforms to the energy sector. Azerbaijan has already signed nine contracts with foreign companies worth over $30 billion in long-term investment in off-shore oil fields since independence in 1991. Half of the new deals are to develop Caspian sites, while the other half will exploit on-land sites. Rafig ABDULLAJEV, assistant

European Republics

Public Opinion Results On Belarus- Rus Union

· A total of 34 percent of Russians and 48 percent

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to Socar President Natig ALIYEV, said, "Our people are waiting for the fruits of developing out energy reserves. In 100 years, there may be other sources of energy and they won't be worth anything then. We need money today." The largest of the new contracts is a proposed $4 billion project between Socar and the Japanese consortium composed of Japan National Oil Corp. Ithochu Oil Exploration Co. Ltd., Japan Petroleum Exploration Co. Ltd., Teikoku Oil Co. Ltd., and Indonesia Petroleum Ltd. It involves the Ateshgahm Yanan-tava, and Mugan-daniz deep water Caspian fields, which are estimated to contain 100 million tons of recoverable reserves.

Uzbekistan Delays Further Oil Sell-offs

· Ibrat ZAINUTDINOV, in charge of Uzbekistan's department of investment programs, said Tuesday that Uzbekistan is delaying large-scale privatization of its oil and gas companies to allow local firms to put their finances in order. The 14 local firms which joined the oil and gas corporation Uzbekneftegaz have been transformed into joint stock companies in which the state holds shares. Uzbekneftegaz, admitting envious feelings toward billions of dollars invested in Kazakhstan during rapid energy sell-offs, said that it prefers a gradual privatization program. While foreign investors laud Kazakhstan's bold rapid-fire energy privatization, Uzbek officials criticize it as hasty. Uzbekneftegaz Chairman Kayum KHAKKULOV said this year Uzbekistan's oil and gas sector may total $1 billion in foreign investment.

Tengizchevroil Against Deals With Iran

· Mike ELGIE, a marketing executive with the Tengizchevroil (TCO) venture developing a huge oil field east of the Caspian Sea, Tuesday said, "I don't think wants to play the Iran game at this point." Chevron and Mobil have 45 percent and 25 percent stake respectively in TCO. Mobil has already petitioned Washington for a permit which would allow it to swap crude from oil fields in newly producing regions for an equivalent amount in Iran. The Iran-Libya Sanctions Act passed in 1996 calls for US sanctions on foreign companies that invest at least

$20 million in Iran or Libya's energy sectors. On Monday, US President Bill CLINTON said Washington would waive sanctions on Russia's Gazprom, France's Total, and Malaysia's Petronas. This has raised the hopes of further softening of US policy. Tehran has been trying to convince Kazakhstan and Turkmenistan to consider exporting their fuel through a pipeline running across its southern territory, saying it is cheaper than the Caspian alternative. ELGIE said regardless of the politics, Tengizchevroil has not looked into a pipeline through Iran. The Kazakh government used small volumes of Tengiz crude to implement an oil swap with Iran, but Chevron has always insisted it did not praticipate in the swap.

World Bank Pledges $610 Million To Kyrgyzstan

· The World Bank has pledged to extend aid worth $610 million to Kyrgyzstan in 1998 and 1999 to help continue economic and structural reform programs. World Bank vice president for Europe and Central Asia Johannes LINN said the amount could go even high because approximately 20 countries and organizations attending the Consultative Group meeting in Paris could not yet commit funds for 1999. The aid is earmarked for the Public Investment Program for 1998 to 2000 and commodity assistance, technical aid pledges, and balance of payments support. LINN noted that the Kyrgyzstan economy has grown 7 percent annually over the past two years. Kyrgyzstan's state farms have been disbanded; the financial sector privatized; and as major sectors such as energy and telecommunications modernized. Newly appointed Prime Minister Kubanychbek DZHUMALIYEV said that Bishkek has begun its second phase of transformation aimed at expanding industrial output and boosting exports. The government has privatized all services and about two-thirds of the agricultural and industrial sectors and is planning to sell-off parts of its energy and telecommunications sectors, DZHUMALIYEV said.

The Daily Report on Russia and FSU

will not be published on Monday May 25th

in observance of Memorial Day.

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

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