DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, September 23, 1998

Russian Federation

Politics

Yeltsin Appoints Nemtsov To New Post

· Russian President Boris YELTSIN Tuesday signed a decree appointing former Deputy Prime Minister Boris NEMTSOV to the post of deputy chairman for the Local Self Government Council. YELTSIN is the council's chairman. NEMTSOV will have to maintain regular contacts not only with mayors of cities whose population exceeds a million, but also with mayors of smaller cities whose opinions do not necessarily reach the federal bodies. He was chosen for the post because of his experience in working in both regional and federal agencies. The Kremlin pledged to pay increasing attention to local and regional problems, especially to the expertise of local leaders and managers in resolving economic problems and tackling the crisis. NEMTSOV said, "The president offered me to deal with problems of local self-government, and I accepted his proposal. I agreed to work in the Local Self Government Council only on a voluntary basis." NEMTSOV mentioned among his main tasks on the new post the elaboration of anti-crisis measures at local level, efforts to combat unemployment and perfect the taxation system, which should stimulate the work of enterprises, to attract investments into the Russian industry, to expand the rights of local self-government bodies, which is necessary to form optimal local budgets.

Rus-Iran Parliamentary Cooperation

· Speaker of the Russian State Duma Gennady SELEZNYOV an a delegation of deputies on a visit to the Iranian capital Tuesday met with Iranian First Vice President Hassan HABIBI and chairman of the conciliatory council Ali Akbar HASHEMI-RAFSANJANI and described these talks as very important. The sides discussed a number of international, regional and bilateral issues. "The Iranian

side is concerned over the current situation in the Russian economy and how we plan to get out of the crisis," SELEZNYOV said. Special attention was paid to the problems of the Caspian Sea and its future. "We are linked by the Caspian which is our common bond. However, the working out of the legal status of the Caspian that would be acceptable to all the countries concerned is inordinately delayed," the Duma speaker said. He said the lack of a coordinated decision hinders the development of natural wealth of this inland reservoir, generates problems and differences between Caspian countries and hampers the solution of economic tasks and pressing environmentalist tasks. The two side reaffirmed their cooperation to the development of atomic energy for peaceful means. "We proceed from the fact that Russia as a nuclear power and Iran as a state not aspiring to possess nuclear weapons adhere to commitments resulting from their participation in the Nuclear Non-Proliferation Treaty," SELEZNYOV said in the Iranian parliament. He said that Iran's openness will dismiss allegations concerning its nuclear program. Iranian and Russian leaders voiced concern over the escalating civil war in Afghanistan, terming it a threat to regional security. SELEZNYOV said cooperation between Moscow and Teheran appears to be very important for strengthening security in the region. The ongoing Afghan crisis will threatened the security of the region and increase drug trafficking. Today, the Russian lawmakers are scheduled to meet Iran's spiritual leader Ayatollah ALI KHAMENEI.

Today's News Highlights

Russia

EBRD President In Moscow

LUKoil Privatization Terms

New Auto Import Tariffs?

GM, Cadbury Stop Production

UES Prepares For Winter

European Republics

Ukraine To Pay Russia In Goods

South Caucasus & Central Asia

Four UNOMIG Injured In Attack

GUAM Alliance Strengthens

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Economy

Ruble = 16.22/$1.00 (NY rate)

Ruble = 16.217/$1.00 (CB rate)

Primakov Meets EBRD President On Economy

· Russian Prime Minister Yevgeny PRIMAKOV today met with President of the European Bank for Reconstruction and Development (EBRD) Horst KEHLER to discuss Russia's economic situation. PRIMAKOV said that talks focused on ways, "to understand each other better and discuss contacts and relations that may help Russia." PRIMAKOV noted that while the strategic course of the consolidation of market principles in the development of the Russian economy will be preserved, its practical implementation will be adjusted taking into consideration the needs of the people. He said the "emphasis will be made on developing real economy in the country and on enhancing the social trend of reforms." KEHLER confirmed the determination of the EBRD leaders to continue and step up the activity of the bank in Russia, with the emphasis on the backing of direct investment into the economy. He noted that, "present problems in Russia are not disastrous and can be resolved." The sides also discussed possible areas for stepping up the EBRD's operations in Russia, including those on support for small businesses and expansion of credit lines to back export production facilities in Russia.

Deputy Prime Minister Alexander SHOKHIN and Chairman of the Central Bank of Russia Viktor GERASHCHENKO also participated in the talks. The EBRD is the largest investor in the production sphere of the Russian economy. Early in September, KEHLER stressed that the EBRD will promote the country's transition to a market economy. It is vitally important that Russia should deepen its commitment to a market economy and create a favorable climate for growth of investments, and the EBRD is ready to help Russia in this respect, KEHLER continued. The firmer the reforms, the greater possibilities open for the EBRD and other investors to make their contribution to creating a strong market economy and to realizing the huge potential of Russia, he stated.

Zadornov Meets IMF Mission

· Russia's acting Finance Minister Mikhail ZADORNOV on Tuesday met with the International Monetary Fund's (IMF) mission led by head of the

second European department Jorge MARQUEZ-RUARTE to discuss the financial situation in Russia. "The subjects for discussion were suggested by the Russian side and concerned financing budgetary expanses for the fourth quarter of the current year, drafting the budget for 1999, a complex of urgent measures to boost budgetary revenues, as well as a monetary program, foreign debts, and restructuring of the GKO-OFZ (state short-term securities and federal loan bonds) market," according to the press service of the Russian Finance Ministry. The IMF mission provided comments on Russia's situation. "The IMF mission will continue work with Russian specialists until the end of the week to specify and coordinate the financial and monetary programs for 1998-1999."

Business

Privatization Tender Terms Approved

· Russia began 1998 with an aggressive privatization program, which included offering stakes in oil company LUKoil, Rosneft, telecommunications company Svyazinvest, and Gazprom. So far, none of the major privatizations have gone through because of the political and financial uncertainty. The Russian government has approved some terms an conditions for the sale of a nine percent stake of LUKoil. The stake will be offered at 2.75 billion rubles ($170 million) which the buyer is required to pay within three months of the sale. The winner would also be expected to pay a sum equivalent to 65 percent of the bid within five says of signing a contract an the balance within 75 days. The money will be used to cover LUKoil's costs in projects in Kazakhstan and Azerbaijan to buy and upgrade a drilling platform. There is no restriction on foreign participation. The terms were approved under acting Prime Minister Viktor CHERNOMYRDIN on September 11th. LUKoil produced approximately 62 million tons (about 1.25 million barrels per day) of crude oil in 1997.

First Deputy Minister of State Property Alexander BRAVERMAN on Tuesday said the starting price for shares of Rosneft and Svyazinvest will be adjusted due to the financial crisis in the next few days. There may be changes in other parameters of the earlier announced privatization tenders, BRAVERMAN said. He noted that the change in the ruble prices for Rosneft and Svyazinvest blocks of shares is an indispensable condition for the sale of these blocks

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of shares to strategic investors as they are less affected by fluctuations in the market than portfolio. BRAVERMAN said the strategy course of privatization in Russia will not change. The State Property Ministry is prepared to announce the launching of six individual privatization projects in the near future.

Auto-makers Propose More Tariffs

· Chairman of the Avtoselkhozmash holding company board Nikolai VOLOSOV at a meeting of the Public Council for the Development of the Russian Car Industry on Tuesday said that Russian car producers have suggested that the government enlarge the import tariffs on foreign-made cars by 20-30 percent. Productions, to yearly manufacture 2 million foreign cars for the supply to the Russian market, have been set in motion in the near abroad, he said. The productions of the far abroad also stake on car supplies to Russia. There are only 100 cars per every 1,000 of Russian residents, while the index is 500 in Europe and 1,000 in the United States. In the opinion of VOLOSOV, the protective measures should differ for types, classes and production dates of vehicles in order to supply $300 million a year to the federal budget. VOLOSOV stands for a limited supply of vehicles, made over five years ago or equipped with the right-side wheel, to the country.

More Foreign Businesses Stop Production

· From American auto giant General Motors (GM) to the British confectionery company Cadbury's, many foreign businesses have halted production in Russia due to the continuing economic crisis in the country. GM said it was forced to stop production of Chevrolet Blazers at its assembly plant in Yelabuga, and that sales of completed vehicles had been halted because of an unstable currency exchange rate. Cadbury's said production at its candy plant in Chudovo near the northwestern port of St. Petersburg, was stopped temporarily because stocks were high and sales were falling. A Cadbury's official said the plant would reopen "when sales pick up." Mars, another big confectionery producer in Russia, declined to comment on reports that some of its employees at a plant in Stupino near Moscow, had been laid off. R.J. Reynolds, the tobacco manufacturer, also temporarily shut down production last week but says it has restarted production. US engine-maker Pratt & Whitney has placed its investment plans in Russia on hold. Pratt & Whitney had planned to invest up to

$40 million building engines with Russia's aircraft engine-maker Perm Motors. Continuing financial uncertainty in Russia has forced Western companies to reconsider their investment positions in the country, with most waiting for signs of which economic direction the new government will take.

UES On Winter Preparations

· Chairman of the Board of United Energy Systems of Russia (UES) Anatoly CHUBAIS said on Tuesday at a national conference of senior executives of the power sector that coal reserves today are only 84 percent of the total amount needed for winter and fuel oil is only at 85 percent. Coal reserves in the subsidiaries of UES amount to 23 million tons and the reserves of fuel oil to 3.5 million tons. In order to fulfill the plan of preparations for the winter, it is necessary to accumulate additionally 1.7 million tons of coal from the Siberian power systems and 1.5 million tons from the Far Eastern power systems. First Deputy Chairman of the Board of UES Oleg BRITVIN said that difficulties with preparation for the winter were the result not only of the overall financial situation of Russia, but also of the specific problems of UES. BRITVIN noted that UES has been paid for only 82 percent of the electricity it supplies. Of those payments only 20 percent were paid by consumers in cash or bank bills. Because of this, 17 power systems, including Arkhenergo, Tatenergo and Krasnoyarskenergo are not profitable.

European Republics

Ukraine To Pay Russian Debt In Products

· Ukrainian President Leonid KUCHMA, summed up the results of his talks with Russian President Boris YELTSIN and Prime Minister Yevgeny PRIMAKOV last week as highly successful. KUCHMA said an arrangement was reached with the Russian leadership that, "Ukraine's debt to Russia amounting to $1 billion, including indebtedness for gas, will be repaid with goods deliveries, specifically food." Retaining the Russian market will be helped by creation of the joint anti-crisis group. KUCHMA said it will, above all, determine the procedure of settling accounts between the two states. He announced that a meeting of the Ukrainian-Russian mixed commission presided over by the premiers will be held in early November. Representatives of both countries will convene under the patronage of the presidents

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in Kharkov to discuss problems that impede economic development and to consider specific projects. Today, KUCHMA met with visiting Russian Interior Minister Sergei STEPASHIN to discuss cooperation in fighting economic crime and organized groups. STEPASHIN and Ukrainian Interior Minister Yuri KRAVCHENKO are to meet later today over banking, currency, and foreign economic crimes, as well as drug-trafficking and illegal migration.

South Caucasus & Central Asia

UN Observers Attacked In Georgia

· On Monday, four members of the United Nations Observer Mission in Georgia (UNOMIG) were injured when their bus was ambushed by gunmen shooting small fire arms in the Abkhaz capital of Sukhumi. UN spokesman Fred ECKHARD said UNOMIG had protested the incident to the Abkhaz authorities. ECKHARD said, "We do not know the identity of the attackers at this time," and added that UNOMIG is investigating the incident. Abkhaz leader Vladislav ARDZINBA denounced the attack, blaming it on Georgian authorities as trying to destabilize the region. Georgian security officials said they had no information about the incident. It is unlikely that Georgia was responsible for the attack. While both UN personnel and Russian peacekeepers have been attacked in the vicinity of the border between Abkhazia and Georgia, this is the first attack on UN personnel in Sukhumi, which is located 50 kilometers from the border and is outside the normal sphere of operation of Georgian guerrilla organizations. UN observers have been monitoring the truce between Georgian government forces and separatists in Abkhazia beginning 1993. Since then, several observers have been injured or killed. Comment: This is precisely the reason why the UN observers require an armed protection force. The lack of which has restricted UN observers from venturing outside of Sukhumi and Tblisi and prevented them from fulfilling their mandate. Intercon sources indicate that Russia opposes any armed protection force from being introduced in Abkhazia because Deputy For

eign Minister PASTUKOV has admitted to UN officials that this would be the beginning of the end for ARDZINBA and his associates. Meanwhile, the car of Georgian president's commissioner Iveri CHELIDZE came under fire from known gunmen near the Gvanda settlement, the Abkhazian Kodor gorge. The shooting injured three, including the administration head of a Georgian settlement of the Kodor gorge and a television correspondent.

Georgian President Eduard SHEVARDNADZE said Tuesday that he was ready to meet ARDZINBA in Sukhumi, but did not specify a date. After meeting head of the Abkhaz government Sergei BAGAPSH, the President said, "I am ready to meet ARDZINBA in Sukhumi. I am not afraid of this. I'm sure this meeting is necessary and will be useful." BAGAPSH is in Tblisi for talks within the Coordinating Council on natural gas transportation, resumption of railway traffic, repair of work at the Inguri hydroelectric power station and the setting up of joint ventures. Georgian State Minister Vazha LORDKIPANIDZE will visit Sukhumi later this week to conclude negotiations.

GUAM Alliance Strengthens

· Border officials from Georgia, Ukraine, Azerbaijan and Moldova have ended a quadrilateral meeting Tuesday in Tblisi, with a pledge to strengthen border cooperation. According to information provided by Ukraine's Border 6 force, the four countries agreed to coordinate their efforts to fight international terrorism, drugs and weapons trafficking, and illegal transport of nuclear waste. They also agreed to take part in the various activities and international actions within the framework of NATO's Partnership of Peace program. The GUAM nations decided to set up a panel of experts to solve problems in the four neighboring countries. It was agreed that government leaders will meet at least once a year to discuss proposals. Last year, the four countries agreed to establish an informal alliance to strengthen cooperation in geo-political and economic areas. Georgia is rapidly developing its Board Guard force with the assistance of the US government.

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Jennifer M. Rhodes, Principal Editor

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