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, June 9, 1998

Russian Federation

Politics

Bonn-Moscow Summit

· Russian President Boris YELTSIN and German Chancellor Helmut KOHL today met and discussed issues, including commercial and economic relations between the two countries, German investments into the Russian economy, cooperation in the coal industry and in the training of personnel, problems of debts, military-technological cooperation, reciprocal recognition of education certificates, contacts between the higher schools of the two countries, problems of displaced cultural values, migration of Russian Germans to Germany, as well as world issues and the conflict in Kosovo. YELTSIN was accompanied by Deputy Prime Minister Oleg SYSUYEV, Foreign Minister Yevgeny PRIMAKOV, Economics Minister Yakov URINSON, Defense Minister Igor SERGEYEV, Interior Minister Sergei STEPASHIN, Finance Minister Mikhail ZADORNOV and Atomic Energy Minister Yevgeny ADAMOV, who held parallel meetings with their German counterparts Monday evening. Before the meeting KOHL commented that, "I am extremely glad to meet soon my friend Boris Yeltsin... With this format, which is new in our relations, Russia will join the ranks of our major partners in the West, in Eastern and Central Europe, with which we have been holding such consultations." Germany is Russia's largest trading partner outside former Soviet republics with bilateral trade in 1997 at 32 billion German marks (about $17.7 billion). Moscow hopes to boost exports of Russian raw materials and imports of German finished goods. YELTSIN urged Germany to increase investment in Russia. German investments, mainly in the services and trade sectors, account for 11 percent of total foreign investment in Russia. YELTSIN said, "We have truly friendly relations which I treasure. We discuss many questions as is a custom

between leaders of partner states. Naturally, we give priority attention to economic cooperation." Approximately 2,000 joint Rus-German firms do business in the Russian market. KOHL said, "The consultations have been a success." On Monday, the two countries signed two agreements on nuclear cooperation. The first accord is for Russia to deliver enriched uranium to a German nuclear research reactor in Munich. A second agreement encourages deliveries of German technologies to improve the security level of Russian nuclear power plants, German officials said. YELTSIN also met with Gerhard Schroder, speaker of Germany's upper house of parliament, Tuesday morning. Schroder is campaigning, as the Social Democratic Party candidate, to become the next German chancellor.

Impeachment Proceedings Hit A Snag

· The Communist led impeachment motion launched against Russian President Boris YELTSIN hit a snag today when deputies failed to set up a panel to draw up formal charges. The Russian State Duma must create a panel made up of representatives of all factions to prepare an indictment. Following formal charges, the Duma will have to vote by two-thirds to launch impeachment proceedings. The pro-government faction Our Home Is Russia said it did not want to take part, bringing the motion to a halt. The impeachment proceedings in Russia are extremely complex and favor the President. Even if the Duma votes to start impeachment proceedings, the motion must be authorized by the Constitution and Su

Today's News Highlights

Russia

Statistics Com. Head Arrested

LUKoil Opens NY Office

Lear Produces Seats For Gaz

Delta Telecom Tests RD 4500

European Republics

Belarus Evicts 22 Ambassadors

South Caucasus & Central Asia

Stalled Peace Talks

Emerging Silk Road

Chevron Opens in Kazakh

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June 9, 1998

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preme Court and then go to the Federation Council, consisting of regional officials who are loyal to YELTSIN. The Communists and their allies have accused YELTSIN of a range of charges, including instigating the Soviet collapse, launching the botched Chechen war, and ruining the country's economy.

Economy

Ruble = 6.170/$1.00 (NY rate)

Ruble = 6.171/$1.00 (CB rate)

Ruble = 6.142|6.200/$1.00 (buy|sell rates)

Tax Chief Purges Agency

· The newly-appointed head of Russia's federal tax service Boris FYODOROV today announced that he was sacking some of his senior officials on suspicion of corruption. He said, "I now have to purge my office. Some of my deputies are leaving today, some will leave tomorrow. There is corruption, I have to deal with it, although I prefer not to." He again stressed the need to improve coordinated efforts between the tax police and tax inspectorate. FYODOROV repeated calls for a new "ministry of revenues" that would bring together several bodies which are now working separately. He added that the agency is holding "tough talks" with oil companies, but did not give any details.

Statistic Committee Head Arrested

· Yuri YURKOV, Head of the Russian State Committee for Statistics (SCS), and the management of the Committee's Main Computing Center, were arrested Monday night. The SCS officials were arrested, "for distorting statistical data on large firms and companies, which enabled those firms to evade taxation. The arrested understated actual data, which was augmenting the share of the "grey" sector of the economy. They also sold classified information on competitors to various firms," the Government Information Directorate (GID) official said. The case was handled by the Federal Security Service (FSB) and the Office of Prosecutor-General. YURKOV has been under investigation and surveillance since April. According to investigation data, a ramified and well-organized criminal system was uncovered within the SCS. "The government leadership knew about investigation being conducted and sanctioned investigators' most resolute actions," the GID official stated. He said this is the first case involving a State official of such a high standing. YURKOV has been heading the SCS since October 1993.

Business

Lukoil Opens First Office In US

· Russia's biggest oil company LUKoil Monday celebrated the opening of its first US office in New York City on Madison Avenue. LUKoil President Vagit ALEKPEROV attended the ceremony. He is in New York to accept the Global Corporate Leadership Award from the Institute for East/West Studies. He is being honored for his leadership in converting LUKoil from a state-owned Soviet enterprise to a modern, competitive globally integrated energy producer. Other honorees include Georgian President Eduard SHEVARDNADZE and Romanian President Emil CONSTANTINESCU. ALEKPEROV created LUKoil in 1991, modeled on the vertically integrated multinationals that dominate the global oil industry. LUKoil has become one of the world's largest private oil companies in terms of oil reserves and production. The company produces and processes oil and sells petroleum products under the principle, "from well to filing station." In December 1995, LUKoil became the first Russian company to place its securities on the US stock market. LUKoil formed a strategic partnership with Atlantic Richfield Company (ARCO) to invest a total of $5 billion in oil projects in Russia and other countries. The joint venture, known as LUK-Arco, is a member of the consortium developing one of the most promising new oil fields in the world, the Tengiz oil field in Kazakhstan, and a member of the Caspian Pipeline Consortium for the construction of an oil pipeline from Tengiz to the port of Novorossiisk on the Russian coast of the Black Sea. Additionally, LUKoil has teamed with Texas-based Nexus Fuels to open gas stations in supermarket parking lots across the US.

Lear To Produce Seats For Gaz

· Germany's Lear Corporation has signed an agreement with Russian automotive producer Gaz to take over the company's seat production at the Nizhny Novgorod factory for the Volga, effective today. Lear's investment in the complex will be $2 million and the transfer of technology to Gaz. President and chief operating officer of Lear's International Operations Robert ROSSITER said, "Lear's involvement in the Gaz complex marks the first time an outside supplier has participated in the Gaz complex. This venture in the Russian market provides strong potential for future growth. While out

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initial production will be focused on seats, we also see an opportunity to produce other interior components for Gaz. Lear Corporation, a Fortune 500 Company, is one of the world's largest automotive supplier, with 1997 sales revenues of $7.3 billion. Lear's products are designed, engineered, and manufactured by more than 54,000 employees in over 170 facilities located in 26 countries.

Delta Telecom To Test RD 4500 Technology

· According to a Radio Design press release, Delta Telecom signed a pilot contract with Radio Design on May 29, 1998. Delta Telecom will test the possibility of switching its St. Petersburg network to RD 4500, Radio Design's product. If the tests planned for this autumn are successful, then according to Delta Telecom's Technical Director Viktor USTYUZHANIN his company will convert its whole network to the new technology. The Radio Design technology, RD 4500, increases the spectrum efficiency of NMT 450 (Nordic Mobile Telephony) and allows the operator to support typically 3 times as many subscribers compared to the conventional NMT 450 systems. In addition, the RD 4500 provides improved coverage, which substantially reduces the number of required base station sites. The capacity and coverage offered by RD 4500 makes it well suitable for wireless local loop (WLL) applications. Radio Design is a growing international company, employing over 250. It is dedicated to revolutionizing and enhancing the NMT 450 standard.

make arrangements to remain in the complex during repairs. On Monday, the Belarus attempted to weld shut a gate to the American residence. When US Ambassador Daniel SPECKHARD returned home, he found the American flag on the ground and workers welding a side gate shut. The workers left only after SPECKHARD protested. He said that the US has leased the property since 1992, with a renewal option in 2001, and spent $800,000 already in repairs. The Belarus foreign Ministry offered the ambassadors small apartments elsewhere in Minsk, which embassy officials deemed unacceptable. SPECKHARD said the US diplomatic staff are concerned not just about moving, but about the absence of any guarantees that they will be able to return to their premises after repairs.

Under international law, ambassadors' residences are considered sovereign territory and host government have no right to enter without permission or insist that diplomats leave. US State Department spokesman James RUBIN said, "We have urged the government to halt this self-destructive action and if the government in Belarus makes it impossible for our ambassador to carry out his responsibilities, we will be force to take retaliatory actions...The residence of an ambassador is inviolable. The host government is obligated under the convention to take all appropriate steps to protect the residents and to make sure that it is supplied with adequate services." If the Belarus government forcibly evicts the ambassadors, it would be the first violation of the Vienna Convention since Iranian militants seized the US Embassy in Tehran in 1979.

South Caucasus & Central Asia

No Progress In Georgia-Abkhaz Relations

· A UN Observer Mission in Georgia (UNOMIG) armored vehicle hit an anti-tank mine Monday wounding two Russians and one Albanian in the Gali district. Georgian presidential representative Vazha LOTKIPANIDZE and Abkhazian representative Anri DJERGENIA continued peace talks with Russian Foreign Ministry officials Lev MIRONOV and Gennady ILICHEV in Moscow, completing their sixth day, Monday. The Abkhazian delegation is refusing an international mediator to help resolve the conflict and rejected Georgia's proposal that the Russian peacekeeping force be augmented by a

European Republics

Belarus Violates Vienna Convention

· Belarus, the former Soviet Republic known for its resistance to economic reforms, freedom of speech, and open market policies, turned back the clock Monday when it used Soviet style methods to evict 22 ambassadors from their residences, violating the Vienna Convention and property leases. In April, the Belarus government served a notice to ambassadors living in the Drozdy diplomatic complex stating that they had to leave their homes to allow for repairs and renovations. The complex, built just after World War II for Communist officials, is in very poor condition, needing new pipes for sewage and environmentally safe water. The deadline for diplomats to leave is Wednesday. But, residents protest the invasion of their rights, saying they would prefer to

When you need to know it as it happens

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Ukrainian force. Abkhazia is demanding that Tblisi and Sukhumi jointly petition Moscow to lift the economic embargo on Abkhazia. The talks are intended to prepare a draft peace agreement, protocol on the repatriation of ethnic Georgians to the Gali district, and a protocol on control mechanisms. US Senator Jesse HELM in a letter to Georgian President Eduard SHEVARDNADZE he said I am, "appalled by the failure of the so-called Russian "peace-keepers" in Georgia to avert last week's crisis in Abkhazia. I am all the more distressed by numerous and compelling reports, including eye-witness accounts by Georgian refugees, of active Russian involvement in the latest rounds of fighting. Further, I am greatly concerned by indications of an active, ongoing Russian covert action aimed at using the recent crisis to erode public confidence and destabilize your government. This behavior must not be tolerated, and cannot go unchallenged." Intercon sources report that Russia is exerting pressure on the Abkhaz to accept return of all the refuges without conditions. It is impossible for Georgia to agree to the lifting of sanctions until there is a final resolution to the Georgian-Abkhazian conflict. It appears that the Russian position has changed for the better.

Silk Road Revival Strong In Georgia?

· The revival of the old Silk Road from China to Central Europe is continuing to strengthen despite conflicts between Georgia and the break away region of Abkhazia. US Senator Sam BROWNBACK on June 4th called on the CLINTON Administration to take a strong position with regard to this area and Russia's interference. In his statement BROWNBACK noted that Georgia, "is a NATO borderland at the entry point to the emerging new Silk Road. It is a key ally of our partner Turkey and is important in many ways: strategically, militarily, commercially. If Georgia were to become unstable, the entire region would be put in jeopardy." Regarding the Silk Road he said, "This ambitious project will eventually encompass pipelines, roads, and railraods, airports and communications networks that stretch from Central Europe to China. This corridor will completely alter the

economics and the politics of Eurasia in way that we cannot foresee, but which are certain to intersect US strategic interests in Eurasia in many places...For the corridor to function stability in these states is essential." He urged the administration to stop being apathetic and reverse its support of Russian mediation. To him, Russian "mediation" means injecting peace-keepers to the region. He noted that, "experts to travel to the region reports the same thing: Russia is responsible for arming, training, and sustaining Abkhazia's so-called freedom fighters." US Senator Jesse HELMS in a letter to Georgian President Eduard SHEVARDNADZE said, "I also foresee, in the wake of the recent armed insurrection in Abkhazia, the need for further measures to provide additional types of United States assistance to strengthen Georgia's stability and security. I will contemplate appropriate steps to provide such assistance when the full Senate undertakes consideration of the Silk Road Act. This additional assistance is critical in light of the fact that key elements within Russia have mounted an all-out effort to re-subordinate your country to Moscow's rule." Removing this unwanted force, can only foster stability and cooperation between Georgia and other Eurasian states.

Chevron Opens Station In Kazakhstan

· US oil company Chevron announced Monday that it has opened its second brand service station in Kazakhstan. The Chevron station is the first western service station in the new capital Astana; the other is located in Almaty. The opening ceremony was attended by Kazakh President Nursultan NAZARBAYEV and director of Chevron Corp. and President of Chevron Overseas Petroleum Inc. Richard MATZKE, and local government officials. According to a Chevron press release MATZKE called the new station, "one more link in the chain of economic cooperation that is being built between the republic of Kazakhstan and Chevron." The service station, employing 12 to 18, meets the highest world standards for environmental, ecological, fire and technical safety. It offers three grades of unleaded gasoline, diesel fuel, and a convenience food market.

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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