DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, May 21, 1998

Russian Federation

Politics

Chernomyrdin To Run For Siberian Duma Seat

· Former Prime Minister and Presidential hopeful Viktor CHERNOMYRDIN has decided to run in a by-election for a vacant seat in the Russian State Duma representing the Yamalo-Nenetsky district. It is not clear when the election will be held, but parliamentary sources said it would be a safe seat for CHERNOMYRDIN, who once led Russia's natural gas giant Gazprom. Yamalo-Nenetsky is a large, sparsely populated region in northern Siberia that is rich in natural gas reserves. CHERNOMYRDIN is the leader of the Our Home is Russia (NDR) movement, which is the second biggest in the Duma after the opposition Communists. He hopes to use this Duma seat as a way of staying in the political lime-light during the time prior to the Presidential elections in 2000. CHERNOMYRDIN served as Prime Minister for five years until President Boris YELTSIN unexpectedly sacked him on March 23rd, accusing his government of failing to push ahead reforms and resolve wage arrears problems in the public sector. YELTSIN has issued a half-hearted endorsement to CHERNOMYRDIN as his potential successor. CHERNOMYRDIN begins a trip on Friday touring the Orenburg Region and meeting with leadership, activists of the NDR regional branch, industrial workers, students and businessmen.

Crisis Commission To Discuss Miners' Strike

· During talks with the "big four" today, Russian President Boris YELTSIN ordered the setting up of a crisis commission to tackle the problems of Russia's miners, who are protesting for their unpaid wages. The commission will convene in the first 10 days of June and will include YELTSIN, Prime Minister Sergei KIRIYENKO and parliamentary representatives. The miners' protests have paralyzed the rail

ways in several areas and coincides with turmoil on the Russian stock market.

Deputy Prime Minister Boris NEMTSOV on Wednesday said that the government will not over extend its budget law in solving the miners' problems. He admitted that the 73.7 billion new rubles provided in the budget is not enough, but it is what the miners will receive. NEMTSOV said that the government has a precise action plan, but that this plan does not provide for printing more money or selling gold reserves. Everything should be done within the budget limits and without any attempts of blackmail, NEMTSOV said, referring to railroad blockades staged by miners. He listed several steps already taken by the government to ease the situation, including setting the limits of financing in May, solving miners' social problems, paying for children's recreation, and covering travel expenses in northern regions. Commenting on demands for the government to step down, NEMTSOV said, "Citizens have the right to make demands, to go on strikes...The only thing they do not have right to do is to destroy our country."

YELTSIN also called on Federation Council Speaker Yegor STROYEV and Russian State Duma Speaker Gennady SELEZNYOV to ratify the START-II Treaty. Speaking about the State Duma's position on the Treaty, SELEZNYOV emphasized that, "the main thing is that there should be a feasibility study...I know that not a single kopeck has been assigned in this

Today's News Highlights

Russia

Rosneft Sale To Continue

Gov't Appeals Share Law

Aribus Cancels Rus-Ukrn Project

European Republics

Latvia To Amend Citizenship Law

Latvian Ports To Attract Investors

South Caucasus & Central Asia

New Turkmen Gas, Oil Head

Tajik To Receive $280 Million

Politics-Economics-Business

Page

Thursday

May 21, 1998

Intercon's Daily

year's budget for the START-II Treaty." YELTSIN also reported on the G-8 Summit.

Governor To Be Next President?

· As Intercon reported on Monday, Russian President Boris YELTSIN introduced the Governor of the Saratov region Dmitry AYATSKOV to US President Bill CLINTON as, "one of Russia's best governors," and then as, "the future President of Russia." AYATSKOV on Tuesday said YELTSIN's remark just reflected his satisfaction over the meeting with CLINTON and expressed his emotions at the moment. AYATSKOV commented that, "I was not happy at all...I know quite a few examples when after being introduced in such a way many presidential candidates turned out to be outsiders. I do not want to be one of them and believe that what the President said was a joke." He added that he was preparing to run for a second term in the governor's office, not for the Presidency in 2000.

Economy

Ruble = 6156/$1.00 (NY rate)

Ruble = 6,157/$1.00 (CB rate)

Ruble = 6,137|6,178/$1.00 (buy|sell rates)

WB President Visits Moscow

· President Boris YELTSIN said at a meeting with World Bank President James WOLFENSOHN today, "We have been cooperating for six years and I think that during this time you have been convinced that Russia is a reliable borrower." WOLFENSOHN's visit to Russia is focusing on the implementation of the IBRD program for providing loans to Russia as well as prospects for cooperation to support the reforms carried out by the new Russian government. He assured Russia that the World Bank will do everything it can to maintain good partner relations with the government and peoples of Russia.

WOLFENSOHN urged the Russian government to take a series of emergency measures to reassure panicked investors. He said Russia is too dependent on short-term bonds, making the current economy very vulnerable. He added that it is impossible to solve the development issue by way of foreign loans. He urged the country to cut its budget deficit and increase its public revenue. On Wednesday, WOLFENSOHN met with Russian Deputy Prime Ministers Viktor KHRISTENKO and Oleg SYSUYEV

to discuss the joint activity of the bank and the Russian government in reforming the social sphere. SYSUYEV described the cooperation as successful, "because social-purpose loans are now in the focus of attention of the Russian government." This above all applies to the reform of the pensions system, the drafting of new labor legislation, and the development of a system for providing support to specific layers of the society, the Deputy Prime Minister said. WOLFENSOHN and SYSUYEV paid special attention to projects in the fields of education and health care. The Russian official emphasized that the World Bank's funds are spent on a structural overhaul of the social sphere rather than on "patching up the holes." The World Bank chief noted that even good financial programs would not work if no attempts were taken to solve social problems. Deputy Prime Minister Viktor KHRISTENKO praised WOLFENSOHN's personal involvement in promoting the financial projects of great importance to Russia. WOLFENSOHN also met with Finance Minister Mikhail ZADORNOV. Russia has received approximately $10 billion from the World Bank and a further $3 billion has been promised for this year.

New Economic Indicators Released

· Head of the department of accounting and analysis of tax revenues Vladimir KASHIN at a briefing, held at the State Tax Service of Russia, said the results of the first quarter of 1998 show that revenues to the federal budget amounted to 58.1 billion rubles an increase of 14 percent against the same period of 1997. The increment is the result of the growth of revenues to the federal road fund to the level of 4.5 billion rubles. Tax revenues increased by 7 percent totaling 53.4 billion rubles. Tax payments in the form of cash collected in the first three months of 1998, exceeded similar payments of the past year by 1.3 times and amount to 35.8 billion rubles.

The State Statistics Committee reported that Russia's gross domestic product (GDP) in January to April remained unchanged from the same period last year, while industrial output increased by 1.2 percent. April's increase of industrial output totaled 131 billion rubles. Russia's GDP in April was 204.4 billion rubles, a 0.2 percent increase from last April and a 0.3 percent increase from the previous month. Services totaled 55.4 percent of the GDP compared with 51.6 percent last April.

When you need to know it as it happens

Politics-Economics-Business

Page

Thursday

May 21, 1998

Intercon's Daily

The Committee Wednesday released preliminary data showing the number of unemployed people in Russia increased by 1.1 percent in April to reach 6,592,000 or 9.2 percent of the economically active population. However the number of officially registered unemployed people went down 1.4 percent for the same period to 1,933,000.

Business

Rosneft Sale To Continue As Planned

· Prime Minister Sergei KIRIYENKO today stated that the Russian government will not postpone the Rosneft oil company tender, nor will it alter its terms. "For us it is impossible for reasons of principle, since the corresponding decisions were made and endorsed," he told a government meeting. He added that the staring price for a 75 plus one percent stake in the oil company Rosneft of $2.1 billion is high, but realistic. He recalled that the price had been set on advice from a world-recognized appraiser, Dresdner Kleinwort Benson, selected on a contested basis. KIRIYENKO said all necessary information was available to potential investors and the government systematically informed them and the public at large about all steps concerning the sale of Rosneft. The Prime Minister said the winner in the contest would have full control of the company and the government would do everything to protect investors' interests. The winner is also required to invest $400 million in the company. KIRIYENKO stressed the importance of a fair contest, "no matter whether it will be a Russian or foreign legal entity, or a consortium of Russian and foreign investors." Another senior Russian official said that Russia expects several bids, including bids from foreign investors. KIRIYENKO added, "The sale of Rosneft is important to Russia not only from the standpoint of its effects on the federal and regional budgets, but from the standpoint of general investment opportunities in Russia's emerging stock market, too." Rosneft is the last major Russian energy enterprise still owned by the state and the tender is set to close on May 26th with results to be announced on May 29th.

Government Questions Foreign Shares Law

· The Russian government has announced plans to appeal to the Constitutional and Supreme Courts to prevent the law on restricting foreign shares in Unified Energy System (UES) and other state-run energy companies to 25 percent. The government

believes that the law violates the civil code and the Russian Constitution; they plan to amend the law. Foreign investors hold 28 to 30 percent of UES shares. Deputy Prime Minister Boris NEMTSOV attributed this week's decline on the Russian stock market in part to the adoption of the law, which Russian President Boris YELTSIN was forced to sign after both housed of parliament overrode his veto. Prime Minister Sergei KIRIYENKO said today. "These amendments are to cancel this situation...Before these bodies adopts a decision, the government is taking measures to protect the rights of investors, both Russian and foreign ones, in RAO UES...Their right of ownership will be protected and guaranteed."

Aribus Pulls Out of Rus-Ukrainian Project

· The West European consortium Airbus Industries Wednesday decided to withdraw from a Russian-Ukrainian project to build military transport plane An-70, which may cost the company $4 billion in damages. Deputy director general of the Aviaprom Company Vladimir IVANOV said the consortium will need at least five years to bring its own military transport plane to the An-70 level. IVANOV explained the consortium's decision to follow its own way despite all costs by the desire to preserve jobs both in production and designing. "They seek to retain the designing jobs and all others in western Europe, not in our countries," the deputy director said.

European Republics

Latvian Parliament To Amend Citizenship Law

· The Latvian parliament on Wednesday voted by 52 to one with one abstention to approve in principle amendments to the citizenship laws that will allow those born in Latvia after it gained independence on August 21, 1991, to become citizens after they reach the age of 16, if they can prove sufficient knowledge of the Latvian language. The bill is to cancel the practice of the so-called naturalization "windows," which has divided Latvian residents without citizenship into age groups, each having a right to seek local citizenship no earlier than in a stated year. A third of the population of this Baltic republic are not citizens. OSCE's High Commissioner for Minorities Max VAN DER STOEL has insisted that children should be granted citizenship regardless of nationality or language skills. The amendments will be heard on the second and final reading on June 4.

When you need to know it as it happens

Politics-Economics-Business

Page

Thursday

May 21, 1998

Intercon's Daily

Latvian Ports To Attract Foreign Investors

· With plans for creating a united Baltic market and Latvia's determination to become a European Union (EU) member, Latvia officials are declaring their country as the Hong Kong of the Baltics, The Journal of Commerce reported. Latvia has started a program to reform its economy and align its business code with EU laws and standards. Latvia has signed free-trade agreements with all of the EU countries. Vice President of American Chamber of Commerce in Latvia Sol BUKINGOLTS said, "Latvia is a manufacturing and distribution transit hub with ready access to Russian and European markets." The country's three ports, Riga, Ventspils, and Liepaja, all offer free-trade zones and ample rail connections. The ports can handle more than 45 million tons of cargo per year. Riga Ship Yard is the largest Shipyard on the Baltic east coast, capable to repair and refurbish ships. Ventspils Free Port Authority benefits from a new navigational channel. Ventspils is the largest port in the Baltic Sea, handling 30 million tons of cargo, mostly oil products, potassium, and liquid chemicals, per year. It handles 15 percent of Russia's oil exports. Most of Liepaja holds a special economic zone status to spur conversion from a naval yard to a commercial port. Foreign investors have the same rights as local entrepreneurs and are not required to take a local partner. No sector is completely closed to foreign investment. Latvia's strength is its highly skilled engineering manpower offered at a low cost. Latvia was the center of mechanical and electrical engineering for the Soviet industrial complex. There are more than 400 engineering manufacturing companies in the nation. Latvia is also creating a modern telecommunications infrastructure to meet the demands of being a regional hub. Latvia's telephone network was the first public utility to be privatized. A British-Finnish consortium Tilts Communications, owned 70 percent by Cable & Wireless and 30 percent by Telecom Finland, initially invested more than $160 million for the modernization of the network and now plans an additional $240 million to rehabilitate the rural telephone system.

South Caucasus & Central Asia

Turkmen President Appoints New Gas, Oil Head

· Turkmen President Saparmurat NIYAZOV on Wednesday signed a decree dismissing Oil and Gas Minister Batyr SARJAEV and replaced him with Turkmenneft deputy chairman Rejepbai ARAZOV, RFE\RL Newsline reported. On Tuesday NIYAZOV attended a ceremony marking the beginning of oil production at Turkmen's Burun oil field. The Turkmen President said that his country has created the proper conditions for foreign investment, noting the example of the Monument-Mobil company, which runs the oil field. NIYAZOV also mentioned Turkmenistan's close relations with Iran based on "geopolitical and economic realities."

Tajik To Receive $220 Million From WB

· Tajikistan will receive $220 million in loans and $60 million of humanitarian aid from the World Bank within next three years, under an agreement signed in Paris on Wednesday. The document was signed by Tajik President Emomali RAKHMONOV and the World Bank's European Bureau. Tajikistan was also represented by a member of opposition in the government, Dolvat ISMONOV, who holds the office of Minister for Finance and Foreign Economic Affairs. World Bank representatives said the sum of the loans would be much greater, but concerns about security deterred many donors from offering more than short-term financial support. However, donors said the significant economic reforms implemented since the government signed a peace treaty with the United Tajik Opposition were enough to encourage donors to provide some assistance. According to a World Bank statement, the bank urges the Tajikistan government to, "pay particular attention to privatization and farm restructuring.

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

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

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1998, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page