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

Wednesday, July 1, 1998

Russian Federation

Politics

Anti-Crisis Plan Receives First Reading

· Russian Prime Minister Sergei KIRIYENKO defended the government's anti-crisis package of 26 draft laws to the Russia State Duma, which includes a raft of tax reforms, spending cuts, and the abolition of many Soviet-era benefits at its first reading in the Duma. It is aimed to raise more revenue to put the state budget back on track and to pay wage arrears to millions of state workers. Duma Speaker Gennady SLEZENYEV said that the Duma would hold an extraordinary session on July 15th and 16th in order to pass the program before the parliament's summer break. However, many speculate that only part of the package will be passed by that time. Communist Party leader Gennady ZYUGANOV said, "We will support the package of laws which ease the tax burden and develop our industry...but financial and economic measures alone will not save our country. Agarian leader Nikolai KHARITONOV said his faction will back the emergency legislation because there is no alternative. "We don't care about KIRIYENKO and his government, but if it collapses whoever replaces it will have a wreck rather than an economy on his hands." The government approval of the plan will unlock international loans worth up to $15 billion. KIRIYENKO called for creating a conciliatory commission of government representatives and deputies from the Duma and Federation Council, which would revise the laws approved by the Duma in the first reading.

Impeachment Com. Begins Proceedings

· The Russian State Duma commission that will decide whether a motion to impeach President Boris YELTSIN is warranted convened for the first time Monday. Chairman of the Commission Vadim FILIMONOV, a member of the Communist faction,

announced that the commission will work through the Duma's summer recess, which begins July 16th. He declined to set a deadline for the completion of the commission's work. Duma First Deputy Speaker Vladimir RYZHKOV has charged that main goal of the commission is to protect the Duma against dissolution. The President cannot disband the Duma, if it has adopted a motion on impeachment. RYZHKOV's faction Our Home Is Russia was the key party necessary to form the commission. RYZHKOV explained that while his faction is against impeachment efforts, it will participate in the Commission to keep apprised of its activities and express dissenting opinions when necessary, RFE\RL Newsline reported. The Communists and their allies have accused YELTSIN of instigating the collapse of the Soviet Union, launching a botched war in Chechnya, and ruining the Russian economy. Although the Communist Party have been the most outspoken against YELTSIN, local magazines have reported that the impeachment proceedings may be tainted by banker's influence in the political arena. Duma deputy Vladimir SEMAGO said that the formation of a commission on impeachment would signify, "the active interference of bankers in political affairs, not the strengthening of the left wing in the Duma." The impeachment process in Russia is a complex and lengthy one which favors the President. Once the formal indictment is prepared, a two-thirds majority of the 450-seat Duma is needed to launch the impeachment motion. Then, it must be confirmed by both the Constitutional and Supreme Courts as

Today's News Highlights

Russia

Import Duties Adjusted

Volvo Vostok To Open

Oil Cos. Denied Export Access

European Republics

Sino-Estonian Forge Dipl. Ties

South Caucasus & Central Asia

Courtney Leaves Sec. Council

Threatening Forces In Georgia

Azeri-Romania Oil Discussions

Politics-Economics-Business

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Wednesday

July 1, 1998

Intercon's Daily

well as the Federation Council. On Monday, YELTSIN sacked his representative at the Constitutional Court Sergei SHAKHRAI by presidential decree, which gave no reason for the dismissal. SHAKHRAI was long regarded in Moscow as one of YELTSIN's more loyal officials. SHAKHRAI claims that he was fired for remarks on the impeachment motion at the congress of his Party of Russian Unity and Accord (PRES). He criticized the presidential administration for underestimating the threat of presidential impeachment procedures that the State Duma proposed. SHAKHARI also called for supporting Moscow Mayor Yuri LUZHKOV in the next presidential election. YELTSIN appointed Kremlin official Mikhail MITYUKOV to replace SHAKHRAI as his representative at the Constitutional Court. This fall, the Constitutional Court will examine the possibility that YELTSIN, taking advantage of a Constitutional loophole, will run for a third term as President.

Economy

Ruble = 6.200/$1.00 (NY rate)

Ruble = 6.202/$1.00 (CB rate)

Ruble = 6.172|6.232/$1.00 (buy|sell rates)

Import Duties Adjusted

· Russian Prime Minister Sergei KIRIYENKO said it is necessary to adjust the level of import duties in the customs sphere and to step up protection of the domestic market, including in import of foodstuffs. The law on protection of economic interests, adopted last April, provides for this adjustment. KIRIYENKO reported that a decision was taken to license the import of sugar and to impose temporary special protection duties, amounting to 40-70 percent of customs value, for the period of sugar-beet harvesting. "A decision was taken to raise rates of import customs duties for meat of turkey, geese and ducks from 15 to 25 percent," Itar-Tass reported. Last May, import licensing of color TV sets, carpets and carpet goods was introduced to protect Russian producers. He also reported that the government took a decision on adjusting import customs duties by 150 types of medicines and raw materials for their manufacture. The cabinet believes it is necessary to cut duties on raw materials and semi-finished products by 50 percent and to increase customs duties on ready-made medicines by 20 percent in cases when they have Russian analogues. KIRIYENKO noted a repeal of the value added tax on imported technologi

cal equipment is a basic element of foreign trade policy, KIRIYENKO added that, "the general principle is to cut import duties on technological equipment and spares to it and to raise customs duties on ready-made goods."

Business

New Volvo Co. To Be Established In Russia

· Volvo has announced plans to establish a new company in Russia named Volvo Vostok. The new company will have coordination responsibility for Volvo's entire operations in the Russian market. Volvo will also develop a new joint group office building for Volvo in Russia, which will include all Volvo companies' operations, dealer functions, training facilities, warehousing and display areas. Volvo's management believes that Russia and the Eastern Europe region have great potential for growth. Volvo's ambition is to achieve a strong market position in the region through successively expanding the service and dealer network as well as local manufacturing. It further plans to add bodies to Volvo bus chassis in Omsk, Russia. The value of Volvo's sales in Central and Eastern Europe including Russia totaled approximately SEK 3.6 billion in 1997. Volvo's goals in the near future is to increase sales in the region to a total of about SEK 15 billion.

Volvo and Volkswagen (VW) are in preliminary talks on a cooperation pact that could eventually lead to a merger. Volvo could help VW enter the market for medium and heavy trucks. Talks between the two companies follows a trend of global consolidation in the auto industry.

Gov't Denies Access To Export Pipelines

· The Russian government on Tuesday decided to deny access to export oil pipeline for five oil companies, which have debts to the federal budget, starting today. After a meeting designed to clamping down on debtor oil companies, Russia's vice-premier Viktor KHRISTENKO announced that Bashneft, Sidanco, Tyumen Oil Company, Tatneft and ONACO will be denied access to export pipelines. Under the resolution, these companies are to be denied access to export oil pipelines until all their debts to the federal budget are repaid in fixed terms. The IMF, which is negotiating with Russian officials a possible multibillion-dollar stabilization loan, supports measures to force oil companies to pay their tax debts.

When you need to know it as it happens

Politics-Economics-Business

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Wednesday

July 1, 1998

Intercon's Daily

"The government is determined to have all market players fulfill their liabilities to the state...Moreover, we will watch closely to see to it that oil companies earnestly pay taxes to the federal budget." The meeting also discussed the possibility of sacking the head of the Slavneft Oil Company at a next session of the special commission on boosting tax revenue and tax issues related to 13 oil companies. The meeting decided to set up a permanent working group to draft proposals on further measures to be taken in respect of debtor oil companies.

Meanwhile, Russian gas monopolist Gazprom's subsidiary, Gazexport's Chief Executive Officer announced Tuesday that Gazexport plans to expand natural gas supplies to foreign countries this summer to reach 120 billion square meters of gas. Gazexport Director General Yuri KOMAROV said these supplies are meant to replenish gas reserves before the next heating season, when the demand for energy resources reaches its maximum. Expanding the so-called "summer" exports allows the company to increase the sum total of foreign currency earnings, he said. This will make it possible to keep the gross currency earnings at a high level in 1998 despite the predicted 19 percent price drop by the end of the year, KOMAROV said. Gazexport expects to earn $8 billion in 1998, which will be only $0.5 billion less than 1997 earnings.

OOVEL, the first Estonian Defense Minister to visit China, will also tour Shanghai and Hangzhou.

South Caucasus & Central Asia

Former Georgian Ambassador Leaves NSC

· US Ambassador at large and former US Ambassador to Georgia William COURTNEY has left the National Security Council, where he was Senior Director of Russia, Ukraine and Eur-Asia. Intercon sources report that Ambassador COURTNEY's differences with Deputy Secretary of State Strobe TALBOTT is the true motivation for his removal, even though other factors may have played a role. As has been observed by many, the State Department's Russia oriented policy is now being actively questioned and in some circles especially on Capitol Hill criticized. Most troubling at this time is the fact that a replacement for COURTNEY has not been named and that the other members of his office have only been recently appointed. It is understood that COURTNEY will be taking a yet to be announced position in the US State Department. COURTNEY was highly regarded by many for the positive contributions he made while being ambassador to promote democratic reform in Georgia. Previously, he received high marks as Ambassador to Kazakhstan and also served in Moscow. It is surprising that COURTNEY's removal comes at a critical time in United States-Russian relations when great concerns cover issues ranging from economic and fiscal policies to nuclear proliferation.

Threatening Forces Within Georgia?

· At the closing address of the Georgian parliament, Chairman Zurab ZHVANIA warned that ethno-territorial conflicts threaten Georgia's stability. ZHVANIA charged that Moscow is actively supporting separatist tendencies among the ethnic Armenian population of several districts in southern Georgia and in the west Georgian district of Mingrelia. The ramifications of these brewing conflicts spill-over into political infighting, which has been initiated by Aslan ABASHIDZE's Revival party. The Revival party is refusing to attend parliament sessions on the grounds that the Civic Union Party is not interested in cooperating with various parties. At a recent Revival congress in Batumi, the capital of Ajaria, the Socialist Party headed by former Georgian parliament speaker Vakhtang RCHEULISHVILI, and Shalva

European Republics

Estonian-Chinese Defense Min. Forge Ties

· Chinese Vice President HU Jintao met with visiting Estonian Defense Minister Andrus OOVELIN Beijing Tuesday. HU said that Sino-Estonian relations have grown smoothly since the two countries forged diplomatic ties. The exchange of visits between leaders of the two countries has promoted bilateral trade and cooperation in political, economic and cultural fields. HU said that the relations between the armed forces of the two countries are an important component of bilateral ties, adding that OOVEL's visit to China will promote mutual understanding and friendship. OOVEL stressed the importance of developing Estonia-China relations. He reiterated Estonia's, "one China" policy, and HU expressed his appreciation of Estonia's correct position on this issue. OOVEL is also met with his Chinese counterpart CHI Haotian. CHI briefed OOVEL on China's defense policy and its armed forces.

When you need to know it as it happens

Politics-Economics-Business

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Wednesday

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Intercon's Daily

NATELASHVILI'S Labor Party have expressed their backing of Adjarian Supreme Council chairman Aslan ABASHIDZE, and the United Communist Party of Georgia, headed by the father of the most notorious wanted criminal Igor GIORGADZE, Pantelamone GIORGADZE may likewise join an ABASHIDZE-led opposition alliance. ABASHIDZE has frequently slammed the Georgian leadership and Georgian President Eduard SHEVARDNADZE for failing to lead the country out of political and economic crisis, while being a source of it himself. Chairman of the Anti-Corruption Committee of the Georgian parliament Giorgi BARAMIDZE rejected ABASHIDZE's criticism accusing him of siding with pro-Russian forces opposed to SHEVARDNADZE's pro-western government. Other Georgians report on background that they believe ABASHIDZE is nothing more than a paid GRU (Russian Military Intelligence) agent and now part of Russia's covert action campaign to topple SHEVARDNADZE. Intercon sources report that two months before the February assassination attempt on SHEVARDNADZE, ABASHIDZE instructed his Revival members of parliament not to cause any trouble for "big changes" were coming to Georgia and they should be still until then. Georgian sources are convinced that ABASHIDZE was aware of the assassination attempt and as soon as it failed he began agitating and withdrawing these same parliament members from the Georgian parliament.

Another force threatening the nations stability is crime and corruption, specifically government graft. SHEVARDNADZE, has implemented several measures to combat political infighting and corruption. On June 17th, he called for the creation of a special investigation unit to attack high level corruption in the government. SHEVARDNADZE said that graft was threatening Georgia's national stability and its relationship with global financial institution and foreign investors. "Unfortunately, the present system of governing in Georgia has not been able to overcome the bureaucratic apparatus, which shelters the shadow economy and corruption that is out of control," he said. SHEVARDNADZE has also agreed

with some of the proposed constitutional changes in the structure and functions of the cabinet of ministers. A special meeting of parliament is planned to discuss the constitutional changes, which are being negotiated among the various government factions.

Azeri-Romanian Discuss Oil Routes

· Azerbaijan President Geidar ALIYEV and Romanian Emil CONSTANTINESCU held talks in Baku on Tuesday, which focused on the transportation of Caspian oil and gas within the framework of the Europe-Caucasus-Asia transport corridor. According to CONSTANTINESCU, Romania and Azerbaijan as two European states are participants in this promising transport project and occupy key positions in the Eur-Asian continent. One proposal is for transportation of oil from Baku to the Romanian port of Constana. If this proposal is accepted by the international oil consortiums developing oil fields in Azerbaijan's sector of the Caspian Sea, Azeri oil may be shortly transported from Baku through Romania and Hungary to Italy. CONSTANTINESCU pointed out that Constana already has existing terminal and refining facilities with a capacity of 31 million metric tons per year. A decision on the main route, on which Russia, Turkey, Georgia and Ukraine lay claims, will be made in October. The leaders also signed a package of bilateral documents, designed to strengthen relations between the two countries. ALIYEV said that talks were positive and that the two leaders shared identical views on problems of the bilateral relations, the regional and international cooperation. The two leaders emphasized the importance of restoring the Great Silk Road. CONSTANTINESCU hopes to attend the international conference for the Great Silk Road in Baku on September 7th and 8th. The heads of state and governments from more than 30 European and Asian countries are expected to attend the conference. CONSTANTINESCU left Baku today for Tblisi.

The Daily Report on Russia and FSU will not be published on Friday July 3rd and Monday July 6th in observance of Independence 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

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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.

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