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, July 7, 1998

signed agreements on mutual encouragement and protection of investments and on the protection of the rights of resettlers. A large package of social and economic agreements was signed by members of the Russian and Kazakh governments.

Wife Murders Russian Extremist?

· Former Chairman of the Russian State Duma Defense Committee from January 1996 until May 1998, retired General-commander in the war with Chechnya, and parliament deputy Lev ROKHLIN was found dead in his dacha outside of Moscow on Friday. Shortly after a neighbor reported the murder, ROKHLIN's wife Tamara confessed to killing him with his personal Makarov handgun. However, ROKHLIN's relatives and allies believe that the murder has political implications. His daughter,Yelena, said that she did not believe her mother was involved in the murder and added that her mother confessed because some had threatened to kill the rest of her family. Deputy head of the Movement in Support of the Armed Forces, founded by ROKHLIN, Alexander MOROZOV said the murder was, "purely political" and rejected attempts to describe it as a family drama. Communist Deputy Victor ILYUKHIN went further to say that, "Certain forces in YELTSIN's entourage are preparing a takeover of power by force, including the internment of opposition leaders. In an effort to quash these suggestions, a spokesman at the Federal Security Service (FSB) stated that, "the murder of Lev ROKHLIN has no signs of a terrorist act related to an attempt on the life of a political

Russian Federation


Russia-Kazakhstan Sign Caspian Agreement

· Russian President Boris YELTSIN and Kazakhstan President Nursultan NAZARBAYEV Monday signed an agreement dividing the northern part of the oil-rich Caspian Sea into national sectors, which may open the door for the five littoral nations to solve a long-standing dispute over ownership of the seabed. The agreement will divide the north Caspian seabed into Russian and Kazakh sectors, allowing oil exploration and equal access to the sea's fishing grounds. The two leaders also signed a document giving their cabinets a two month deadline to settle financial disputes. Kazakhstan's debts to Russia exceeds Russia's debt to Kazakhstan by more than $1 billion. Kazakhstan, Azerbaijan, and Turkmenistan, the three countries with oil near their coastlines, want the Caspian divided into national sectors so they can claim the oil for themselves. But Russia and Iran want the sea's resources to be shared by all. There was no mention of a ban on poaching or protection of the rapidly dwindling population of sturgeon, which is facing extinction due to over fishing and pollution. Environmentalists say the Caspian sturgeon, which provides the world with caviar, may disappear in the next five years if current poaching combined with oil development continues unabated. Monday's agreement appears to be a victory for Kazakhstan because it recognizes its claim to oil near its coast.

Russian Prime Minister Sergei KIRIYENKO and NAZARBAYEV signed an agreement to open Russian consulates in major Kazakh cities which have large Russian communities. KIRIYENKO said that this agreement is a "serious step" towards resolving problems facing ethnic Russians in Kazakhstan. KIRIYENKO also held talks with his Kazakh counterpart Nurlanmuddin BALGIMBAYEV at which the two

Today's News Highlights


Rosneft Bid Set To Fail Again?

EurAir Passes To Reach Russia

Cost Of Buring a Tsar?

European Republics

Ukraine Foreign Min. In D.C.

Ukraine Nat. Bank Raises Rate

South Caucasus & Central Asia

Georgia-Azeri Regional Policies

Five Nation Summit Sucess




July 7, 1998

Intercon's Daily

figure or political reasons." ROKHLIN strongly criticized Russian President Boris YELTSIN and the government in June, 1997. He accused the authorities of destroying the armed forces and drew support from current and former Russian servicemen who were upset by the military's decline.


Ruble = 6.207/$1.00 (NY rate)

Ruble = 6.209/$1.00 (CB rate)

Ruble = 6.179|6.239/$1.00 (buy|sell rates)

Russian Stock Market At All Time Low

· Monday, Russian stock prices plunged to their lowest level in two years, falling 4 percent in value on continued economic instability in Russia and news that bidders had pulled out of the privatization auction of state-owned oil company Rosneft. The main Russian Trading System index (RTS) stabilized at midday but fell rapidly toward the end of trading, closing at 145.01 from Friday's 151.33. Traders say news of Uneximbank's pullout from the Rosneft auction hit shares while the market was still digesting news of Shell's departure from the list of bidders. A western energy analyst in Moscow said the market is factoring in the possibility the government's second attempt to sell Rosneft may fail, creating a huge shortfall in the state's projected revenues. MFK Renaissance analyst Jim HENDERSON said, "I'd be surprised if anyone else bid at $1.6 billion. There must be at least a 75 percent chance it won't happen now." Continuing speculation over a possible ruble devaluation also kept foreign investors away from Russia. Russian shares have lost almost 60 percent of their value since January, and traders expect continued falls until positive news emerges.

Today, RTS dropped 4.5 percent. Dealers said banks already used up their dollar buying limits in transactions with the Central Bank. Current activity of all Russian financial market sectors is low as market participants sideline. The fall is temporarily checked. Dealers expect the central bank to respond to sharp scale of the bond yield by lift of the discount rate to about 110-120 percent annual, or by revising the green corridor, Itar-Tass reported. JP Morgan Emerging Markets Bond Index noted that Russia's financial situation has drastically dragged down its performance in June, dropping 13.85 percent in value from May and 17.49 precent year-on-year.


Rosneft Bid Doomed?

· The Royal Dutch Shell on Friday officially announced its withdrawal from the Shell-LUKoil-Gazprom consortium, which was formed to bid on 75 percent of the shares of the Russian state-run Rosneft. The Shell said the decision was based on world petroleum market's low prices and the difficult financial situation facing Russia. A statement, released by the company, says that the depressive prospects for oil prices do not correspond at present to the terms of the tender. Shell denied that the government's tax row with Gazprom influenced its decision. Gazprom and LUKoil on Friday said they don't have the funds to bid for Rosneft without Shell, and have also withdrawn. Gazprom vice president Sergei ZVEREV said that Shell's withdrawal from the bid for Rosneft has indicated that Russia's economy is facing a serious downfall of foreign and domestic investments. Monday, Uneximbank followed Shell's lead, pulling out of the Rosneft bidding. Uneximbank, which had formed an alliance with British Petroleum (BP) for the bid, said current market conditions were unfavorable. Today, BP announced it will not participate in the Rosneft bid. A BP official explained the withdrawal was forced by the adverse situation in the world oil market. However, the official said BP is planning to focus on prospecting and development of the Kovyktinskoye gas field in Eastern Siberia jointly with its Russian partner, Sidanco. Sidanco head Boris VOLKOV said he does not favor a possible bid for Rosneft. Russia's Sibneft with its strategic partner Elf Acquitaine and Russia's second largest oil company Yukos are still likely to bid.

The government, which is desperate to raise cash to fill empty state coffers, put Rosneft up for bidding at a price of $2.1 billion this spring, but found no buyers at that price. A second auction has been announced, with the price being lowered to 1.6 billion, but falling oil prices on the world market and economic instability in Russia make this price look unreasonably high. Prime Minister Sergei KIRIYENKO is confident that Rosneft will be sold under favorable conditions. He noted that, "If there is the potential for a rise in oil prices by the end of this year and next year, then the conditions for Rosneft are completely acceptable, and an investor will be found." He said that steps taken by Organization of Petroleum Exporting Countries (OPEC) will have a positive impact on prices.

When you need to know it as it happens




July 7, 1998

Intercon's Daily

Brent crude oil prices, the international benchmark, are at $13.50 per barrel. The Russian government needs the sale revenues to tide it over during negotiations with the International Monetary Fund for a release of an additional $10 billion to $15 billionan aid package.

EurAir Pass Extends To Reach Russia

· Two months after launching the EurAir Pass with nine member airlines, three more airlines have now joined the program, expanding the system from Ireland in the west to Moscow and Kiev in the east of Europe. President of EurAir Pass Bill WOLF stated, "not only has the range of destinations been expanded to reach Russia, but we filled some gaps in the route system between England, Ireland, Germany and Denmark. With these 12 airlines, travelers can crisscross Europe, fly in circles or hopscotch across the Continent to 60 cities located in 21 countries." He added that, "when the program was launched in California on April 21st of this year we knew it would cause a stir in the travel industry. What we got was an earthquake, not a stir." The new airlines accepting the $90 flight fare, plus tax, program are Estonian Airlines, Icelandair and AB Airlines. Estonian Airlines (OV) based in Tallinn offer flights from Hamburg, Copenhagen, Helsinki and Vilnius into Tallinn, Estonia and beyond to Moscow, Kiev and Minsk. The Estonian Government formed Estonian Airlines in 1991. Estonian Airlines flies Boeing 737 and ATR 72 aircraft. EurAir Passes come in a pack of three, are non-refundable and non-transferable, valid for 120 days, and only sold in North America. Each Pass costs $90 plus tax and is good for a one way non-stop flight.

Tuesday Tid-Bits

How Much Does It Cost To Bury a Tsar?

· On July 17th after months of controversy, the remains of the last Russian Tsar Nicholas II and his family will be buried at the Peter and Paul Cathedral in St. Petersburg. Planned as a grand ceremony that would symbolize the renewal of Russian nationalism, the burial has been scaled back significantly and will be a relatively modest affair. The Russian government has allocated $833,000 for the royal burial. The Tsar's funeral is being snubbed by Russian President Boris YELTSIN and Patriarch Alexei II, neither of whom will attend the funeral.

European Republics

Ukraine Foreign Min. Visits Washington

· Ukrainian Foreign Minister Boris TARASYUK, visiting Washington since Monday, said he will discuss trade and economic cooperation with US officials, along with ways to improve the investment climate in Ukraine. He admitted that, "Ukraine recognizes the existence of disputes and is working to settle them in a constructive and civilized manner." Ukraine, the third largest recipient of US assistance, has recently been spared a substantial aid cut after making significant progress in resolving complaints of US investors over corruption, red tape and other impediments to business. Since gaining independence, foreign businesses have invested about $2 billion in Ukraine, a figure described by State Department officials as abysmally low when compared with the country's potential. TARASYUK is scheduled to meet with Secretary of State Madeleine ALBRIGHT to discuss integration in to the European Union. He also plans to meet with Defense Secretary William COHEN and Chairman of a Senate Appropriations subcommittee Senator Mitch MCCONNELL (Rep. KY). During his visit, TARASYUK is expected to set an agenda for US Vice President Al GORE's trip to Ukraine on July 22nd to 23rd.

Ukraine's National Bank Raises Rate

· Ukraine's National Bank has raised its rate from 51 percent to 82 percent for commercial banks effective today. The bank's press service said the decision was necessary due to the poor Ukrainian financial market and the need to redeem internal government bonds, a considerable number of which are held by foreigners. Bankers believe that the increase will result in higher interest rates both on the inter-bank market and for credits. The prices of goods and services are expected also soar. Specialists claim the National Bank's decision was largely prompted by the situation in the Russian financial market where the Central Bank's rate is much higher, which makes the Russian market more attractive for Ukrainian capital.

South Caucasus & Central Asia

Georgia-Azeri To Discuss Regional Policies

· Georgian Foreign Minister Irakly MENAGARISHVILI and Azeri counterpart Tofik ZULFUGAROV today

When you need to know it as it happens




July 7, 1998

Intercon's Daily

are expected to meet in Baku to discuss bilateral issues. MENAGARISHVILI before the meeting outlined a list of issues which included cooperation of the two countries with the organization involving Georgia, Ukraine, Azerbaijan and Moldova (GUAM). He pointed out that the organization, created almost a year ago, will have a profound effect on determining Black Sea and Caspian Sea regional policies. These policies are aimed, first of all, at the mutually advantageous economic cooperation of all states situated on the route from Europe to Asia through the Caucasus. Particularly, MENAGARISHVILI pointed out that the two sides will discuss the laying of the Main Export Pipeline for transporting Caspian oil to world markets. Georgia and Azerbaijan support the 850-kilometer pipeline route from Baku to Supsa. According to MENAGARISHVILI, his working visit to Baku is reduced to the coordination of stands with Azerbaijan on several issues connected with the implementation of the understandings reached by the two countries.

Saturday in Tblisi, a working group of the Azerbaijan State Oil Company on determining the main export route of Caspian oil held a meeting with president of the Georgian International Oil Corporation Gia CHANTURIA. Valekh ALESKEROV, head of the above working group who is also head of the foreign investment department of the oil company, noted that, "agreements, under discussion in Tblisi, will be the basis for future special agreements which will regulate relations between the two countries and organizations [authorized by the governments of these countries] which participate in implementing the project of the main export pipeline of Caspian oil."

Five Nation Summit Sign Joint Statement

· Presidents of Kazakhstan Nursultan NAZARBAYEV, Tajikistan Emomali RAKHMONOV, Kyrgyzstan Askar AKAYEV, China JIANG Zemin, and the Russian Foreign Minister Yevgeny PRIMAKOV Friday met in Almaty to sign a joint statement for the implementation of the 1996 Shanghai agreement and the 1997 Moscow accord on confidence-build

ing measures in the military field and the reduction of armed forces along their common borders. The joint statement expresses the aspiration of the five countries, united by the common borders, to strengthen and encourage in every possible way the long-term economic partnership in the region. The document notes special importance of the intensification of trade and economic relations in frontier regions of the five countries. They agreed that the two measures have formed a foundation for increasing equitable cooperation, genuine friendship, and complete trust between the five countries. JIANG noted that China is prepared to serve as a sort of transport bridge for the four other parties to the negotiations process, primarily as a railway and pipe bridge, giving Kazakhstan, Kyrgyzstan, Russia and Tajikistan the shortest cut to the South-Asian seas. Russia stressed the need for "coordinated and harmonious" transport systems and regional oil and gas networks.

The summit participants also agreed to support a proposal to make central Asia a region free of nuclear weapons. Discussions on a nuclear free accord were heightened following tensions in South Asia due to a series of nuclear tests by India and Pakistan in May. JIANG expressed concerns about the nuclear arms race in South Asia and pledged that China will not conduct any more nuclear tests, while PRIMAKOV called for solving South Asian tensions through dialogue between India and Pakistan. "The fact that the five nations have formally established their borders and are seeking to promote greater confidence in the region is very important now that India and Pakistan have challenged the world community by conducting nuclear tests which have exacerbated the border conflict between them," Leonid MOISEYEV, director of the Russian Foreign Ministry's First Department of Asia said. NAZARBAYEV and RAKHMONOV expressed concern over the armed conflict in Afghanistan. They said the conflict has been aggravated because Afghanistan has turned into a major supplier of drugs to the criminal world and is an entry point for the smuggling of weapons into the Commonwealth countries.

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