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

Tuesday, May 5, 1998

Russian Ratifies Three CE Conventions

· Russian Foreign Minister Yevgeny PRIMAKOV has handed to the Council of Europe Secretary-General Daniel TARSCHYS papers confirming the ratification by Russia of three founding Council of Europe documents, including the human rights convention. PRIMAKOV made a brief speech at the session stating that adapting Russian laws and human rights practices to those of the Council of Europe is a "major goal" of the Russian government. He noted that, "We in Moscow realize that a lot of work is awaiting us ahead. At the international level, we are ready together [with] other member countries of the Council of Europe to continue clearing the rubble of the `Cold War', overcome the relapses of a divided world, fight the challenges of separatism and nationalism. And these challenges exist, because stepping back from confrontation, however historically important it be, does not automatically lead to abolition of all threats." He did warn that Russia will not back down from its confrontation with Latvia regarding discrimination measures against the ethnic Russians living in Latvia.

Strasbourg will be the first leg of the Russian Minister's tour of Western Europe. He is expected to visit Ireland and Britain afterwards. On Wednesday and Thursday, PRIMAKOV will hold talks with Irish Foreign Minister David ANDREWS and be received by President Mary MCALEESE and Prime Minister Bertie AHERN. In London, the Russian delegation will attend a working meeting of the G-8 foreign min

Russian Federation

Politics

Yeltsin-Kiriyenko Restructure The Government

· Russian President Boris YELTSIN and Prime Minister Sergei KIRIYENKO met today to review the wage arrears problem, military funding, and misappropriation of budget funds. YELTSIN and KIRIYENKO also discussed the restructuring of KIRIYENKO's government. Following the meeting YELTSIN appointed Ilya YUZHANOV as minister for land policies, construction and utilities and Vasily LIKHACHYOV as Russia's permanent representative at the European Union. Presidential press secretary Sergei YASTRZHEMBSKY did not elaborate on the appointments, saying that he had not received the presidential decree. YELTSIN has so far appointed three deputy prime ministers and seventeen ministers. Government spokesman Sergei SHABDURASULOV said that he had submitted his resignation, in a move which signals further personnel changes. Appointments are still not complete. YELTSIN said, "There are two or three people left, who must be scrutinized to avoid a "Krasnoyarsk" scenario in the government," but refused to elaborate any further on his comparison.

YELTSIN announced that he has signed a decree which grants the new government to make decisions without channeling them through the presidential bureaucracy. He said, "KIRIYENKO will sign the orders and that's it." This he said would make KIRIYENKO's government more accountable to both the President and the country. Comparing the past government with the new one, YELTSIN said, "The old cabinet was like a fractured staircase including the premier, his deputies, ministries and departments...Now, there will be no departments...There will be fewer ministries and the government administration will be halved."

Today's News Highlights

Russia

Rus-Romanian Relations Strong

Gazprom To Issue $1B Loan

European Republics

Blue Chip Cos. Offer ADRs

Prunskene To Run For Pres.

South Caucasus & Central Asia

Georgia Increases Pres. Guards

AMOK Opens Pipeline Talks

Kazakhoil Reviews Financing

OEC Opens Conference Almaty

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isters. PRIMAKOV is expected to have several bilateral meetings in London.

Rus-Romanian Relations Strengthened

· Russian Foreign Minister Yevgeny PRIMAKOV and his Romanian counterpart Andrei Gabriel PLESU met in Strasbourg on Monday. The two Foreign Ministers discussed bilateral relations and international political affairs. After the meeting, PRIMAKOV said, "We agreed to intensify work in this direction. I stressed that the ball is now in the Romanian part of the field. We earlier proposed a meeting at the level of experts but have not yet got an answer. Now we have agreed that we shall start moving." PRIMAKOV, PLESU, and other foreign ministers arrived in Strasbourg for a session of the Committee of Ministers of the Council of Europe.

Sino-Russia Hotline Links Top Leaders

· Starting today, Russian President Boris YELTSIN and President of the People's Republic of China JIANG Zemin will be able to talk over a hotline. The direct telephone line has been laid out between the Kremlin and Zhongnanhai. Chief of the Chinese Foreign Ministry Press Department ZHU Bangzai said the establishment of the line will enable the two leaders to exchange opinions on bilateral and international problems of mutual interest any time thus strengthening mutual understanding and confidence between the two countries. This is the first occasion when a hotline has been established between the Chinese leader and the head of a foreign state, the spokesman said.

On April 29th, US Secretary of State Madeleine ALBRIGHT and Foreign Policy Minister TANG Jianxuan signed an agreement to lay out a hotline between US and China to begin operating in May.

Economy

Ruble = 6,134/$1.00 (NY rate)

Ruble = 6,135/$1.00 (CB rate)

Ruble = 6,109|6,161/$1.00 (buy|sell rates)

Finance Ministry Proposes Spending Cuts

· The Russian Finance Ministry has proposed cutting federal budget spending by 62.4 billion rubles ($10.2 billion) this year, RFE/RL Newsline reported. The proposed cuts amount to 12.5 percent of all spending mapped out in the 1998 budget. The

ministry has predicted that 1998 revenues will fall 63.9 billion rubles short of budget targets and will total 303.6 billion rubles for the year. Poor tax collection and the slump in world oil prices have cut into projected revenues. Speaking in the Federation Council before he was confirmed as Prime Minister Sergei KIRIYENKO said the government was drafting proposals on some 35 to 40 billion rubles in spending cuts. The Finance Ministry's announcement came during a Moscow visit by a team of International Monetary Fund (IMF) experts, who are checking Russia's compliance with the terms for continued disbursement of a four-year, $10 billion International Monetary Fund loan.

Business

Gazprom To Issue $1 Billion Loan

· Russian gas giant Gazprom head Rem VYAKHIREV on Tuesday announced that sometime this month Gazprom plans to issue a foreign funded loan of $1 billion to be covered by natural gas. Rem VYAKHIREV said various types of bonds worth over $2 billion will be floated in 1998. He noted that the company, which has no credit rating so far among foreign specialized agencies, hopes to receive it at the level of no less than the Russian one. Rem VYAKHIREV pointed out that the company, along with bonds covered by gas plans also to release in 1998 uncovered bonds and bonds convertible into shares. Earlier, Gazprom officials stated that the company hopes to issue convertible bonds worth $1 billion by July 1998. In 1997, Gazprom instructed ABN Amrobank and Goldman Sachs accounting firm to develop a program to raise $2 to $3 billion by issuing bonds for the company. By mid-1997, a program, agreed by the sides, presupposed an issue of uncovered bonds worth $2 billion late in 1997-early in 1998, including Eurobonds worth $1 billion and convertible bonds to the same sum. The implementation of this program, however, was postponed due to the unfavorable conditions set by the Asian financial crisis. Gazprom officials stated late in 1997 that in the first quarter of 1998, the company will use two-three percent of its shares for a program of issuing convertible bonds. According to earlier announced plans, one convertible bond was to be equal to one American deposit stock (ADS) which is equal, in turn, to approximately ten ordinary stocks.

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European Republics

Latvian Vandals Destroy Soviet Monument

· Latvian vandals used explosives to destroy a monument to Soviet soldiers who died during World War II on Sunday May 3rd in the Latvian town of Debele. According to a press statement from the Ministry for Internal Affairs, the monument now is cracked and misses a fragment, the explosion having made a big pit near the foundation of the monument. An investigation is underway, but has produced few details and there are no known suspects. After the explosions near the synagogue of Riga and the Russian Embassy in April, head of the Latvian criminal police Alois BLONSKIS declared that he expected more acts of terror to occur. The Latvian police have tightened control over important sites, as well as the monuments and cemeteries where Russian soldiers and officers are buried. To date the Latvian police have only established who vandalized the Monument to the Liberators in Riga.

Ukrainian Blue Chip Companies To Issue ADRs

· Director of Woods and Company in Kiev Tomas FIALA said that two Ukrainian blue chips, power company Dniproenergo and steel pipe maker Nizhnyodniprovskiy Truboprokatny Kombinat, plan to issue American Depository Receipts (ADRs) in June or July. He said, "Nizhnyodniprovskiy will be the first and Dniproenergo will be second, both in June or July." These two companies will be the first from Ukraine to sell their shares through ADRs. Bank of New York has been appointed to issue the level one ADRs. FIALA added that there will be no new share issues or placements, allowing, "investors to buy shares through the ADR structure and will prepare the companies fir future secondary issues and give them a wider shareholder base." Woods and Company, which is advising the two companies, said that the ADRs should help to encourage greater market transparency and provide a new source of investment for Ukraine's cash-starved enterprises, Reuters reported.

Prunskene To Run For Lith. President in 2003

· The head of the womens' New Democracy Party of Lithuania, ex-premier of Lithuania's first post-Soviet government, Kazimiera PRUNSKENE announced at a press conference today that she is interested in being nominated for president in the

Lithuanian presidential election in the year 2003, she told a press-conference on Monday, May 5. "The Amber lady," as the Lithuanian and foreign media call PRUNSKENE, was elected member of the Council of Women leaders of the world at the Constituent Assembly of the Council at Harvard University last week. The Council was created on the initiative of the women who have been presidents or prime ministers of nine countries.

South Caucasus & Central Asia

Security Increased Around Georgian President

· Chief of the Georgian Presidential Guards Vakhstang KUTATELADZE on national television said that Georgian President Eduard SHEVARDNADZE's security has been increased following reports of new plans to assassinate the President. Intercon sources report that four Chechen nationalist have been identified as under going training at a terrorist camp outside of the Avturin village in Chechnya, Russia. This camp is believed to have been established by Soviet GRU (military intelligence) General DENIEV in 1979.

Four additional cars and bodyguards have been added to the Presidential motorcade and more militia men have been deployed along the roads traveled by the President. SHEVARDNADZE has survived two assassination attempts since becoming President in 1995; the first just after his inauguration in August 1995 and the most recent on February 9th, 1998. The sabotaging of Presidential escort jets while parked on a Russian Air base in Georgia, is the latest in a series of incidents that have prompted many Georgians to believe that powerful forces in Russia are plotting against the new democracy and SHEVARDNADZE himself. Georgian security officials also believe that participants in both assassination attempts against SHEVARDNADZE were spirited through this air base to safety in Russia. The President commented, "It doesn't mean that all of Russia thinks this way. There are people there who are very progressive, but unfortunately the majority are reactionary and that creates a problem." He said that these forces, "want Georgia to be obedient, but freedom and obedience are not compatible. Russia is fighting very hard against the establishment of democracy here," the New York Times reported Sunday. SHEVARDNADZE added that these forces

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also support the breakaway region of Abkhazia. Head of the International Relations department of Tblisi State University Alexander RONDELI stressed the President's point saying the problem is, "the nonstop development of Russia's neo-imperialist policy here...almost everything bad that has happened in the Caucasus is the result of Russian involvement." Russian officials have recently issued sharp warnings to Georgian officials visiting Russia, against moving toward the western camp. "They want us to behave like a colony," stated Revaz ADAMIA, Chairman of the Security and Defence Committee of the parliament.

Azerbaijan Considers Main Export Pipeline

· The Azerbaijan international company AMOK on Friday announced the beginning of talks with countries, interested in laying the Main Export Pipeline to transport Caspian oil to world markets. The decision to start the talks was reached with the Azeri side and 11 foreign companies from six countries, including Russian LUKoil. The main competitors for the pipeline include Russia, suggesting to build the pipeline from Baku to Novorossiisk on the Black Sea. The length of the Baku-Novorosiisk pipeline is 1,411 kilometers, and the cost of the project, if it is approved, is about $2 billion. Georgia praises the Baku-Supsa project, while Turkey insists on the Baku-Ceyhan route. The former is only 900 kilometers long and just over $1 billion. The latter is the most expensive and longest version, costing $2.5 to $2.6 billion. The company has already started commercial development of deposits and transportation of oil to world markets along the northern route from Baku to Novorossiisk via Grozny and Tikhoretsk. Some 400,000 tons of Azeri oil have already been pumped. It is planned to bring 1.5 million tons of oil to Novorossiisk this year in agreement with the Russian Transneft company. The US has consistently supported multiple pipelines, except through Iran.

Kazakhoil Considers New Financing

· Central Asia's biggest state oil company Kazakhoil is considering a sale of a 20 percent stake in the company or a Eurobond issue to raise money for

investing. A decision is to be made later this year. Kazakhoil's investment director Zhakup MARABAEV explained that the company has sent its financial information to Ernst & Young for an audit. MARABAEV said, "We need money for investment, and the audit is just to help us market ourselves." He added that the company which already has title to 15 oil fields will soon be granted absolute ownership of state owned shares in other oil operators it manages in partnership with Western companies. These two moves to strengthen Kazakhoil is part of a sector shake-up last month by Kazakhstan's President Nursultan NAZARBAYEV. Other changes include the appointment of two young officials in the oil sector. Nurlan KAPAROV has been appointed to head Kazakhoil and Yerlan UPUSHEV to run the state pipeline company Kaztransoil; both are under thirty. While putting these men into powerful positions with little experience may appear to reinforce NAZARBAYEV's authority, these young officials have started a campaign to gain more power in order to implement more market reforms.

Economic Cooperation Org. Opens In Almaty

· The Economic Cooperation Organization three day conference opened in Almaty today, with representatives from Azerbaijan, Afghanistan, Iran, Turkey, Pakistan and five countries of the Central Asian region participating. The aim of the conference is to prepare for a regular summit of member-countries of the economic alliance scheduled for May 11 in Almaty. Kazakhstan places special importance on the delivery of extracted oil to the world market, the further increase of international air and railway transportation and haulage, as well as laying out speedier Trans-Asia-Europe fibre-optic communications line. The Economic Cooperation Organization founded by Iran, Turkey and Pakistan, was joined in 1992 by Azerbaijan, Afghanistan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. The first summit was to establish large-scale ties between these countries not only in the trade and economic area, but also in science, culture and the health services.

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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