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

Monday, June 15, 1998

Russian Federation


CIS-OSCE Joint Session To Meet Tuesday

· Leader of the Commonwealth of Independent States (CIS) Interparliamentary Assembly Yegor STROYEV and the leader of the Organization for Security and Cooperation in Europe (OSCE) Parliamentary Assembly Bureau Javier RUPEREZ today discussed issues to be considered by the first joint session of the bodies scheduled for Tuesday. Delegations from Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, and Tajikistan are expected to discuss over 20 issues at the session. Ukraine and other nations have sent representatives to observe the session. RUPEREZ said the CIS has a special role to play in European security. STROYEV, who is also speaker of the Federation Council, said CIS members should be more involved in the integration process. "The tendency to preserve single Eurasian space is not a whim of politicians but an objective reality," he stressed. Positive changes have occurred in economic relations among CIS members. The heads of state had confirmed their intention to pool efforts to overcome all difficulties, he said. They should aim their efforts at aligning national legislation in the trade and economic sphere, STROYEV said.

The council will evaluate progress against the assembly's plan to develop model laws for CIS countries in 1996-1998. Legislators of Commonwealth countries will have to examine a package of bills on the economy, ecology, law, finance, defense and security as well as social protection of population, which were worked out by commissions and working groups of the Assembly to bring closer and streamline legislation of member countries. It is also planned to examine to what extent and how efficient recommended legislative acts (drafted and adopted

by the Assembly) "work" in CIS states. The full agenda also provides for discussion of a possibility of adopting a Charter of the Aged and accession to the European social charter. Plans also provide for exchanging opinions on a UN General Assembly resolution on international year of the aged: on the road to a society for people of all ages. Powers of Chairman of the CIS Inter-parliamentary Assembly Council STROYEV were extended until 2000 by a unanimous vote of the Council members on Sunday.


Ruble = 6.174/$1.00 (NY rate)

Ruble = 6.180/$1.00 (CB rate)

Ruble = 6.150|6.210/$1.00 (buy|sell rates)

Vladivostok Exchange Links With Moscow

· President of the Vladivostok Stock Exchange Andrei MALYUTIN on Friday said the Vladivostok stock exchange established technological communication with the Moscow stock exchange giving its brokers an access to operations with securities in the system of the Moscow stock exchange. From now on Vladivostok brokers will take part in trading of liquid corporate stock on the Russian stock market in the real time regime. The terminals of the Moscow stock exchange will enable Primorye and Far Eastern companies to have their quotations on the Russian stock market. The territorial and regional administrations will place their bonds on the Moscow stock market, where over 80 percent of the Russian capital circulates.

Today's News Highlights


Import Duties To Rise?

Gazprom To Halt Exports?

Ford Delays Plant Construction

Chechnya Threatens Oil Cut-offs

European Republics

Lith-Rus Develop Ties

Additional Disarmament Aid

South Caucasus & Central Asia

Georgian-Iran Meeting

Foreign Min. Discuss Oil




June 15, 1998

Intercon's Daily

Khristenko Stresses Gov't Cutbacks, Taxes...

· Deputy Prime Minister Viktor KHRISTENKO on Saturday at his meeting with Chelyabinsk regional administrators said that the Russian government's anti-crisis measures plans to cut back 42 billion rubles. He said, "such rigid measures are necessary to put the country's budget into a realistic frame and not to continue to accumulate the debt." He admitted that while such austere measures are necessary, the government should not trespass over the, "zone of social patience." Tax targets are unlikely to be fully met in July, KHRISTENKO said. The tax debts remain large and fiscal services must step up their efforts, as an unbalanced budget was a major factor in the financial crisis which hit the Russian economy hard, KHRISTENKO said. He said the government's program nevertheless seeks better tax collection rather than hiking up tax rates. "It has a local character and is intended to increase responsibility of owners," he said. KHRISTENKO sounded reassuring about the government's plan to introduce more rapid bankruptcy proceedings against insolvent enterprises. "We do not have the task of making everything bankrupt and redivided. The main task is improving the quality of payment discipline and the state's getting at last the accumulated debts," KHRISTENKO said.

IMF Funds To Be Released Soon

· Russia and the International Monetary Fund (IMF) have reached a mutual understanding on a 1998 Economic Policy Statement, which fully takes into consideration the Russian government's package of measures, which had been stated at the end of May. According to an IMF press release, the Fund's Board of Directors will meet on June 18th on to consider conclusions contained in the seven quarterly review of the Russian economy. The final review makes it possible to immediately grant a credit installment of $670 million under the extended financing program. If the IMF Board of Directors decide on the advisability and necessity of rendering additional assistance to Russia, the framework within which such an assistance can be rendered will be determined, the press release said.

Russian executive director at the IMF Aleksei MOZHIN said that additional financial aid is being considered in the wake of the recent Asian crisis which has affected countries with transition econo

mies, including Russia. MOZHIN did not specify its plausible size, though many analysts speculate the figure to be $10 to $15 billion. MOZHIN said more aid is understood to be paralleled by, "additional measures on the Russian side to strengthen the economic program of the government." He said the IMF, "is closely watching the developments in financial markets," with special attention to Russia's and the IMF leadership and the Russian government, "maintain a permanent, practically daily dialogue."

Import Duty To Rise?

· On Thursday a high ranking State Customs Committee official said that a draft order, to raise customs duties on all Russian imports, is being prepared by the Economic Ministry. The sources said that it is unlikely that the ruling will be approved because certain commodities are "socially important" and may not be taxed at increased rates. Prime Minister Sergei KIRIYENKO's entourage insisted that all import duties are raised by 5 percent. Meanwhile, Russia may not change duty rates without consent of ex-Soviet Belarus, Kazakhstan and Kyrgyzstan, who are members in a quadrilateral Customs Union dating back to January 1995. So far, the union's integration committee has not considered the tax increase in question. The government earlier mandated that a duty tax rise shall be announced at least 180 days prior to its coming into effect, but it can well cancel this requirement. In accordance with internationally-accepted practices, government decisions are considered equal to force major circumstances and, therefore, shall come into effect from the moment of announcement without exemptions.


Gazprom To Halt Exports Over Taxes?

· Russian gas giant Gazprom chief executive Rem VYAKHIREV threatened to stop signing new export contracts, saying government revenue-raising measures were crippling the firm. VYAKHIREV said the current value added tax, which is 22 percent, and excise duty, 30 percent, not to mention the profit tax and other levies, can "kill off" Russian gas exports to Europe. The high taxes are costing Gazprom to lose about $1 per 1,000 cubic meters of gas on its exports to Europe, which VYAKHIREV said is not affordable for any joint stock company. "Gazprom intends to refrain from signing any new foreign contracts for supplies of gas in cases where Russian taxation

When you need to know it as it happens




June 15, 1998

Intercon's Daily

makes them lossmaking...With such requisitioning, Russian gas delivered to the center of Europe is loss-making," he said. VYAKHIREV urged the government to reduce the value added tax and the excise tax from their current levels. He added that, "The contracts are continuing, but the tougher tax pressure makes them less and less profitable." He also criticized a proposal that would force Gazprom to pay the excise tax upon delivery of gas to the customer, both foreign and domestic, rather than on payment.

Gazprom, one of key tax-payers to the federal budget, accounts for a quarter of all tax returns to the State Tax Service in May. Most of money Gazprom pays in taxes comes from its foreign contracts, with Russian customers' arrears to the company amounting to over 100 billion rubles, VYAKHIREV said. Gazprom only collects between 10 and 15 percent of its revenues from gas sales in cash. VYAKHIREV suggests that the government should mortgage part of its 40 percent shares in Gazprom to oil companies Royal/Dutch Shell or Eni, the company's two strategic partners, in order to raise revenue.

Ford Delays Car Plant

· Ford Motor Company chairman Alex TROTMAN announced that Ford is delaying plans to build a $150 million car plant in St. Petersburg due to the economic instability in Russia. On Friday, TROTMAN explained that Ford is committed to long-term investing in Russia, but at this time plans for the car plant have been "slowed down." He said, "It doesn't feel right, right now, to be going ahead with," plant construction. In January, Ford announced plans to finalize the facility during the first half of 1998. The plant would initially produce about 25,000 Transit vans and Escort cars annually through a joint venture. Despite the economic uncertainty, TROTMAN believes Ford will shift more of their capital for manufacturing in Europe and former Soviet republics, including Poland and Ukraine.

Chechnya Threatens Caspian Oil Cut-offs

· Acting Chechen Prime Minister Shamil BASAYEV on Sunday threatened the cut off crude deliveries from Azeri oil fields to Russia's Black Sea Port of Novorossiisk unless Russia pays what it owes according to an agreement. BASAYEV, in sent a letter to Russian Prime Minister Sergei KIRIYENKO, demanded payments through the end of June, otherwise Chechnya will cut oil flowing through its pipe

line. He said that Russia did not pay for oil transportation along the Baku-Novorossiisk pipeline, which carries "early" oil from the Azerbaijan International Operating Company. Russia and Azerbaijan this year agreed to transport $1.5 million tons of oil from Baku to Novorossiisk in 1998. Russia had to sign an agreement with Chechnya to provide safe transit of the Azeri oil, but it has avoided recognizing Chechnya's independence from Russia by calling the agreement purely commercial between companies, not countries. Russian officials have not mentioned any tariffs on oil crossing Chechnya. However, Chechen officials insist that the agreement calls for Russia to pay $3.58 per ton of oil to Chechnya. BASAYEV added that Russia has not fulfilled any agreement reached at the end of the two year Chechen struggle for independence. Russian Deputy Prime Minister Boris NEMTSOV today said the Kremlin will repay oil shipment debts to Chechnya this week, making the Chechen threats "senseless." He added that construction of an oil pipeline by-passing Chechnya was going on, "rather intensively" and completion is expected this year.

European Republics

Lithuania-Russia Develop Ties

· On Saturday, Russian Foreign Minister Yevgeny PRIMAKOV met Foreign Minister Algirdas SAUDARGAS and Prime Minister Gediminas VAGNORIUS to discuss a wide range of international and bilateral issues. They confirmed their determination to strengthen good neighborly relations between the two countries and to continue their active political dialogue. They stressed the need to accelerate work to finalize an intergovernmental agreement on the development of long-term cooperation between Russia's Kaliningrad region, located near Poland, and Lithuania. The Russian State Duma still has not ratified the border treaty. PRIMAKOV stated that Russia and Lithuania, "do not have any problems in relations which could complicate multifaceted ties in the economic, political and other fields." VAGNORIUS confirmed Lithuania's determination to integrate into European and other structures. He noted that Vilnius will reach this goal, "not by increasing tension, but by strengthening good-neighborly relations and cooperation with the countries of the continent, primarily Russia." Speaking at a press conference, PRIMAKOV said,

When you need to know it as it happens




June 15, 1998

Intercon's Daily

"Lithuania's accession to European economic structures is a decision which does not do harm to anyone. This is why Russia supports such an aspiration of official Vilnius." However, on NATO PRIMAKOV said, "our positions do not coincide at all...Moscow believes that Lithuania can have security guarantees in any form, if it wants, with or without Russia's participation. Russia does not impose any security guarantees. These can `cross' guarantees provided by any country and any organization," he said. PRIMAKOV noted that, "the Baltic countries' accession to NATO is not acceptable to us because it creates certain threats and inconveniences for Russia, affects our geopolitical and security interests." He added that, "Russia and Lithuania have large fields of overlapping interests, including stability, security and development of mutually advantageous economic ties...Moscow intends to do everything possible in ensure that movement towards greater progress in Lithuanian-Russian relations continues in all directions." The two countries are drafting a package of bilateral documents to provide a basis for broader economic relations between Lithuania and Russia, which are to be signed during VAGNORIUS' visit to Russia in the fall. PRIMAKOV also held talks with President Valdas ADAMKUS focusing on ways to transform the Baltic region into a region of sustainable development, security and stability.

US Provides Additional Disarmament Aid

· Ukraine and the US on Friday signed four disarmament agreements, allowing the US to grant $590 million in additional military aid Xinhua Newsline reported. A majority of the money will be allocated for the destruction of strategic nuclear devices in Ukraine, including SS-19 and Ss-24 missiles, 40 strategic bombers and 100 cruise missiles. The document extend to June 27, 2001, over the period of cooperation in the elimination of mass destruction weapons which was spelled out in earlier treaties between the two nations. To date, the US has provided $300 million in disarmament aid, helping Ukraine destroy 85 launching silos and 115 launching devices.

South Caucasus & Central Asia

Georgian Pres. Invites Iranian Leaders To Visit

· According to the Georgian Foreign Ministry press service, Georgian President Eduard SHEVARDNADZE has invited Iran's President Sayed Mohammad KHATAMI and parliament chairman Ali Akbar NATEQ-NOURI to visit Georgia. The invitations were personally handed over by Georgian Foreign Minister Irakli MEAGARISHVILI during his visit to Iran from June 12 to 15th. MEAGARISHVILI also delivered to KHATAMI the Georgian President's personal message. During MEAGARISHVILI's visit, the sides are discussed bilateral relations and agreed to hold the forth session of the Georgian-Iranian economic commission in Tblisi in July. KHATAMI called for further expansion of bilateral cooperation, saying that cooperation will strengthen regional security. He underlined that, "many do not want to see the region in peace and tranquillity, but what is important is that we wish to see the region in peace." MEAGARISHVILI stated the full readiness of his government and people for expansion and consolidation of ties with Iran.

Foreign Ministers To Discuss Caspian Oil

· US Presidential energy adviser Jan KALICKI and Georgian President Eduard SHEVARDNADZE on Friday agreed to hold a regional meeting of Foreign Ministers in Tblisi in July 1998 to discuss the extraction, transportation and selling of the Caspian oil. The Tblisi talks, to continue the Istanbul regional meeting of foreign ministers of March 1998, are expected to reaffirm support to the transportation of the Caspian main oil on the Baku-Ceyhan route via Georgian territory. The United States does not support the construction of transit oil and gas pipelines via Iran and suggests alternative routes via the Caucasus, KALICKI said. He promised the US political, moral and financial support to the Baku-Tblisi-Ceyhan project and the most reliable partnership. In his words, the US general strategy in the region provides for the support of diverse oil and gas pipelines in case they are efficient.

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