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

Friday, October 16, 1998

to work. He canceled the planned Cabinet meeting today, reportedly telling ministers and other assembled officials they had wasted enough time debating their next steps while the economy deteriorated. PRIMAKOV ordered the government and its agencies to settle their outstanding debts within two months. He said the government must pay its bills without printing money. The question remains where the government and state-owned companies will find the money to settle debts. One solution may be to settle debts through barter or other non-cash transactions. According to the Ministries of Economics and Finance, government and state-owned companies will have to clear $3 billion in mutual debts.

Economy

Foreign Trade And Price Statistics

· According to data from the State Customs Committee and the State Committee for Statistics, Russia's foreign trade totaled at $81.6 billion in January to August 1998, or seven percent less than in the corresponding period of last year. Goods turnover in Russia's trade with foreign countries decreased by 7.5 percent to at $63.5 million. The volume of reciprocal trade with Commonwealth of Independent States (CIS) countries shrank by 5.1 percent. Russia's export in January to August diminished by 14 percent to $47.3 million, while import grew by 4.7 percent to $34.3 million. Commodities were exported predominantly to foreign countries to $37.8 million. As far as imports from foreign countries is

Russian Federation

Politics

Power In The Kremlin Changing Hands?

· The Russian Federation Council Wednesday failed to pass a resolution calling for President Boris YELTSIN's resignation. The resolution received 79 votes from regional governors, falling 11 short of the simple majority needed for the move to pass, while 18 senators voted against the motion. Not all members were present for the vote, but a simple majority of 90 is based on total members, not the total voting. The State Duma is considering an impeachment motion against YELTSIN, but the Federation Council has up till now been one of the President's strongest supporters. The 79 to 18 vote by the chamber and the mere fact that the resolution was placed on the agenda are bound to send a strong signal to the Kremlin as another sign that YELTSIN's power and popularity is waning.

However, the Duma failed to pass five amendments to the Russian Constitution that would have stripped YELTSIN of many of his powers, handing them over to legislators. Two rounds of voting received 190 and 244 vote of support in the 450-seat chamber, but failed to win the required 300 to pass. One amendment would have introduced a mechanism to conduct investigations of the executive branch. Two amendments would have given the Duma the power to dismiss key cabinet officials and the Federation Council more time to ratify laws passed by the Duma. The remaining amendments would have required the president to seek the Duma's consent for the appointment of certain cabinet level officials and initiating military action, RFE\RL Newsline reported.

Primakov Orders Debt Settlements

· Russian Prime Minister Yevgeny PRIMAKOV has told his Cabinet to stop haggling and get down

Today's News Highlights

Russia

GKO Negotiations Fail

Primakov Appoints Rosneft Pres.

Gazprom Tender To Be Set?

Svyazinvest Sale Canceled

European Republics

Rus-Belarus Exec. Com. Meets

Turkey Supports Estonia: NATO

South Caucasus & Central Asia

Uzbek Pres. Visits Turkmenistan

Ex PM To Run For kazakh Pres.

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October 16, 1998

Intercon's Daily

concerned, it was almost three times as great as that from ex-Soviet countries. Russian consumers' prices increased by 0.8 percent over the period from October 1st to 12th, 1998. Over the week ending on October 12th, the rate of the price rise amounted to 0.4 percent. Russian consumers' prices increased by 38.4 percent in September, 1998.

Ruble = 13.556/$1.00 (NY rate)

Ruble = 15.51/$1.00 (CB rate)

May Jun Jul Aug Sep Oct

Second Round Of GKOs Talks Fail

· Russia and its western creditors failed to reach an agreement on the restructuring of Treasury Bills (GKOs) and currency forward bonds (OFZs), after two days of negotiations in London. Russia froze payment on these debts and declared a debt moratorium on tens of billions of dollars more of private debt payments August 17th after a spiraling financial crisis threatened to bankrupt the country. Since then foreign investors have accused Russia of favoring its domestic investors and banks. Both sides appear ready to accept the exchange of the $10 billion of ruble GKO debt for a long-term dollar bond with a three- to four-year grace period. However, Russia wants to repay the dollar bond in 15 years, while creditors are urging for a shorter maturity date of eight years. Michael SUSSMAN, Counsel at Mayer, Brown & Platt, said, "It's relatively easy to reach an agreement on the Treasury Bills, but to reach a combined agreement on the Treasury Bills and forwards is probably much more difficult." Russian Deputy Finance Minister Mikhail KASYANOV, leading the delegation, said, "Since these are such

[difficult] financial problems there are big differences in financial terms [proposals]. The talks are constructive but very difficult." KASYANOV said a key issue was wether foreign banks would reduce pay-out demands. The next round of talks are scheduled to be held in London on October 21st.

Business

Japan To Assist Russia In Power Station

· Japan is prepared to offer Russia an easy-term "ecological credit" of more than $2 billion to Russia. The funds will be used to convert 20 thermal power stations from coal to natural gas. The realization of this project will enable Tokyo to put to its credit the fulfillment of international obligations to cut down discharges of harmful substances, which bring about a dangerous warming of the global climate, into the atmosphere. The Ambassador of Russia to Japan Alexander PANOV said today that a Japanese delegation will visit Russian in November to formalize the agreement on terms for the granting and use of the credit. The Japanese side will bear all expenses to draw up the project's feasibility study and cost analysis.

Polaroid Blames Profit Drop On Russia

· The camera company Polaroid blamed the Russian financial crisis for its 18 percent drop in operating profit and 13 percent decline in sales in the third quarter, the Financial Times reported. Chief executive officer Gary DICAMILLO said the group would soon take action to bring about a turnaround, prompting speculation about lay-offs. Polaroid said the situation in Russia became so bad that it suspended shipments to the country over the summer. More than half the third quarter sales decline from $516.5 million last year to $448.8 million, came from Russia.

Primakov Appoints Rosneft President

· Russian Prime Minister Yevgeny PRIMAKOV today appointed Sergei BOGDANCHIKOV as president of Rosneft joint-stock company. BOGDANCHIKOV's appointment ends months of a vacuum in management. He replaces First Deputy Minister for Fuel and Energy Sergei CHIZHOV, who has served as acting Rosneft president since August 25th. From 1993, BOGDANCHIKOV headed Rosneft-Sakhalinmorneftegaz joint-stock company and from 1997 was concurrently vice-president of Rosneft for the coordination of the Far Eastern projects. Russia's

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government had hoped to raise $1.6 billion for a sale of 75 percent stake plus one share in Rosneft. The government scrapped two auctions this year due to market conditions and lack of interest. The latest sale, scheduled for later this month, was canceled partly because of Rosneft's problems with controlling its subsidiaries. Rosneft lost a 51 percent in its biggest producing subsidiary Purneftegaz in a suspicious give-away transaction. It was forced to give up its stake in Purneftegaz after it failed to pay off a loan and overdue fines of 40 million rubles to Russian commercial bank Mapo; the stakes were being held as collateral against a loan. CHIZHOV claims that some of the company's previous managers appeared to orchestrate the default and were benefiting from it. Earlier this week, President Boris YELTSIN ordered the government to return the Purneftegaz 38 percent stake to Rosneft. The shares are under court arrest by the Russian Prosecutor General's office.

Gazprom Tender Could Be Announced In Nov.

· The board chairman of Russia's gas giant Gazprom said on Thursday that a tender to sell five percent of the federal stake in the company could be announced early in November. Rem VYAKHIREV was speaking at a press conference following the completion of a section of the gas pipeline in West Germany. According to VYAKHIREV, the company leadership is not planning to sell the block of shares owned by Gazprom, while talks on five percent from the federal stake have continued for a long time. VYAKHIREV said, he did not rule out the Gazprom tender could be announced on November 1st or 2nd, Itar-Tass reported.

Sino-Rus Logging-Wood JV

· Head of the Khabarovsk Territorial administration's department for the wood and wood processing industries Kazbek KHETAGUROV Thursday said that the first Sino-Russian joint venture for logging and wood processing is being established in the Territory. He said, "The JV [joint venture] is to come into operation as early as November. An appropriate agreement has been concluded and a raw-timber basis has been determined." The joint venture has been founded by the Dalles joint-stock logging company and the timber-industry amalgamation of Heilongjiang province. The Russian side has provided the joint venture with machinery and other fixed assets as well as the infrastructure, while the

Chinese partners provided investment funds. The Russian side will get 51 percent of the output and the Chinese 49 percent. The new company will have the capacity to log 100,000 cubic meters of timber a year.

Rostov Electrosvyaz Starts Wireless Service

· Rostov Electrosvyaz on Tuesday launched fixed wireless telephone service in the Rostov region of Southern Russia to provide the residents of Novocherkassk with voice communications in areas generally unserved by traditional telephone networks. Rostov Electrosvyaz was able to rapidly deploy a network for potential subscribers because Nortel Networks quickly supplied reliable and cost-effective solutions to Rostov Electrosvyaz. Rostov Electrosvyaz's CDMAOne network is part of a 1997 contract with Nortel Networks. In addition to providing wireline service to tens of thousands of subscribers, Rostov Electrosvyaz has introduced fixed wireless service that will target residential users and small businesses in areas where the wireline service is presently not available. Vice president of Wireless Networks, Nortel Networks Glenn BLOOD said, "This project allows us to continue to penetrate the wireless market in Russia and further increase Nortel Networks' presence in the Eastern European region...Our CDMA technology and experience will allow Rostov Electrosvyaz to meet the needs of people who have been waiting for telephone service for years."

Russia Cancels Svyazinvest Sale

· The Russian government has canceled plans to auction a stake in the telephone holding company Svyazinvest. First Deputy Prime Minister Yuri MASLYUKOV said the government needed to cancel the sale because the current offers for the stake were too low. Poor market conditions have scared away major prospective buyers, which would have increased competition and therefore the price of the stake. The sale of a stake of 25 percent, minus two shares, was to be a big source of revenue for the Russian government's budget this year. The sale has been delayed repeatedly because of lack of interest. The government had been forced to lower its minimum price for the stake. While a new price has not been announced, it was to be lower than the $1.04 billion that the government had hoped to receive in an auction originally set for October 13th.

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European Republics

Rus-Belarus Union To Sign Econ. Agreements

· Russia and Belarus are expected to sign five large-scale agreements today. Prime Minister Yevgeny PRIMAKOV, First Deputy Prime Minister Vadim GUSTOV, and Minister for the Affairs of the CIS Boris PASTUKHOV on Thursday attended a meeting to discussed preparations for today's session of the Rus-Belarus Union's Executive Committee. The agreements include terms on Russian diamond sales to Belarus until 2000, rescheduling Belarus' debt to Gazprom, state credit for developing arrangements between Minsk Autoworks, popularly known as MAZ, and the Yaroslavl Automotive Engine-making Plant, another two agreements on the establishment of two trans-republican research and production amalgamations. The Committee is planned to address the issue of creating a single customs space in Russia and Belarus. PRIMAKOV said, "I trust that the [Russian-Belarus] Union will develop in the interests of the both countries." Primakov is also expected to meet Belarus Premier Sergei LING.

Turkey Support Estonia's Membership To NATO

· Turkish President Suleyman DEMIREL Thursday said that Turkey supports Estonia in its effort to join the North Atlantic Treaty Organization (NATO). Speaking at a joint press conference following talks with visiting Estonian President Lennart MERI, DEMIREL said that, "Turkey supports the wishes of Estonia and other Baltic countries for becoming members of the NATO." Turkey, a NATO member, was one of the first countries which recognized Estonia when it gained independence in 1991. He pointed out that trade ties between Turkey and Estonia have not developed as fast as their political ties, and Turkey is ready to provide aid to Estonia in every field. MERI expressed gratitude for Turkey's support for Estonia's request to join the NATO. Praising their close relations, MERI added that he and DEMIREL also discussed the economic crisis in Russia. On his arrival to Turkey, MERI said, "Turkey is one of the leading countries who support the

readiness of Estonia to participate in the Europe-Atlantic institutions."

South Caucasus & Central Asia

Uzbek President To Visit Turkmenistan

· Uzbekistan's President Islam KARIMOV has left for Ashgabat, Turkmenistan today for a one-day working visit at the invitation of his Turkmen counterpart Saparmurat NIYAZOV. The leaders of the two countries are to discuss bilateral partnership matters, interaction within the Commonwealth of Independent States (CIS), and regional cooperation. The talks are also expected to focus on international issues, in particular, the situation in neighboring Afghanistan and the problems of stability and peace in Central Asia.

Former PM To Run For Kazakhstan President

· Kazakhstan's former prime minister, Akezhan KAZHEGELDIN, said on Wednesday he would run for president in a early elections scheduled for January 10, 1999. KAZHEGELDIN, who is now chairman of the Union of Industrialists and Entrepreneurs in the former Soviet Central Asian nation, has been the first politician to officially put forth his candidacy for the post of president. He is collecting signatures for his support prior to official registration; a contender must have at least 160,000 signatures of those eligible to vote. KAZHEGELDIN said that, if elected, he would launch deep reform in an attempt to give equal rights to all ethnic groups in multinational Kazakhstan. According to him, he will, "do so that the fate of the country be decided not by one person but the entire multinational Kazakhstan, in which representatives of all peoples would have equal rights and opportunities and which no one would be willing to leave." Meanwhile, President Nursultan NAZARBAYEV is still pondering on whether to run for presidency in 1999. The decision to hold an early election on January 10, 1999 was taken by parliament on October 8th. Deputies also cut NAZARBAYEV's presidential term by two years, and he had to agree with them after a heated debate.

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