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

Friday, October 30, 1998

Russian Federation

Politics

Yeltsin Rest In Sochi As His Powers Change

· Before President Boris YELTSIN left for a vacation to the Black Sea coast resort Sochi, he met with Russian Prime Minister Yevgeny PRIMAKOV. YELTSIN is taking the vacation on the advice of doctors, who checked the President's health Thursday. The Russian government has not officially disclosed the duration of the vacation, though it may last two weeks. PRIMAKOV updated the President on his trip to Austria, the Russian-European Union Summit, and his negotiations and agreements reached with Chechen leader Aslan MASKHADOV. PRIMAKOV is planned to step in for the President at the summit meeting of the Asia-Pacific Economic Cooperation (APEC) forum Nov. 17th to 18th in Kuala Lumpur. In the presidents absence PRIMAKOV will take over the his duties, while continuing work on the economic plan. The PRIMAKOV Cabinet is scheduled to discuss the economic program over the weekend that calls for larger state role in management of the economy, which was hit by a devalued ruble and rising inflation.

YELTSIN attempted to flex his political muscle before leaving on vacation today by appointing Alexander AVDEYEV as First Deputy Minister of Foreign Affairs and Vasily SREDIN as Secretary of State, Deputy Minister of Foreign Affairs. Since YELTSIN insists on serving out his term, which runs until mid-2000, and has turned over the day-to-day duties of the President to PRIMAKOV, the question remains what type of presidency will he leave. Senior associate at the Carnegie Moscow Center Liliya SHECVTSOVA said, "On one hand, everyone is weary of YELTSIN. But on the other hand, it he steps down, there is imminent danger of a new dictatorship." The President's deputy chief of Staff Oleg

SYSUYEV said, "The political situation in the country has changed. In the past, the president engaged in every aspect of running the country." He stressed that YELTSIN must preserve his constitutional powers in order to ensure the next presidential election. A Kremlin spokesman said today that the President would soon name a panel of legal experts to review changes to the Russian Constitution, including creating a post for a vice president and successor. However, Presidential press secretary Dmitry YAKUSHKIN said, "The president will never agree to amendments which take us back and infringe upon presidential powers." A vice president, if the position is reinstituted, would serve out the regular four-year presidential term, if YELTSIN becomes incapacitated. An amendment to the Constitution must be approved by three-fourths of the Federation Council and two-thirds of the Russian State Duma.

Should President Yeltsin Be Impeached?

70 percent supported impeachment

16 percent think the President should remain

*A Public Opinion Institute poll of 1,500 Russians

Yavlinsky Accuses Government Of Corruption

· Grigory YAVLINSKY, the leader of the Yabloko faction in the Russian State Duma and presidential contender, in an interview with Britain's Daily Telegraph accused the Russian government of being corrupt. YAVLINSKY said that "the passage of a number of decisions is linked with such a vice as corruption. People are appointed to posts at various levels

Today's News Highlights

Russia

Boos Predicts Tax Revenues

Rus. May Form National Oil Co.

European Republics

IMF Releases $78M To Ukraine

Lith. Seeks To Join EU

South Caucasus & Central Asia

Georg-Abkhaz Talks Resume

AES Wins Telasi Tender

Turkey-Turkmen Sign Gas Deal

Kazakh-Uzbek Summit

Politics-Economics-Business

Page

Friday

October 30, 1998

Intercon's Daily

not for their competence, but for the assignments they may be ready to fulfill." He pointed out two ministers: Gennady KULIK, "represents the interests of the agro-industrial complex, while Yuri MASLYUKOV those of the military-industrial lobby." Immediately, Prime Minister Yevgeny PRIMAKOV said that YAVLINSKY must name government officials he implicated in corruption or report his evidence to prosecutors. "I as chairman of the government can say firmly and quite unequivocally: Mr. YAVLINSKY must name those people," PRIMAKOV said. If YAVLINSKY does neither, he "either covers criminals or slanders," PRIMAKOV said. Speaker of the State Duma Gennady SELEZNYOV, on a visit to China, said that, "Before making a statement, a leader of the parliamentary faction or party should present facts." First Deputy Prime Minister Yuri MASLYUKOV opposed YAVLINSKY's statements most vigorously saying that, "Perhaps he thinks that this is politics, but it is outrageous." Russian Interior Minister Sergei STEPASHIN is prepared to meet with YAVLINSKY to discuss the his accusations against the government. STEPASHIN said, "If Grigory Alexevich [YAVLINSKY] has concrete information, I, as Interior Minister, shall be grateful to him...I also support the struggle against corruption, but accusations can and should be put forward only on the basis of a court ruling." Prosecutor General Yuri SKURATOV said YAVLINSKY may be sued for slander, if his allegations prove unfounded.

Economy

Russia Fails To Break Negotiation Impasse

· Thursday in London, Russian negotiators and western bank representatives failed to break an impasse on the repayment of $10 billion of frozen treasury bills (GKOs) and bonds (OFZs) and approximately $7 billion of currency forwards (NDFs), The Wall Street Journal reported. Russia wants to restructure the GKOs by giving foreign investors dollar-denominated bonds in exchange for their forward contracts. Many foreign investors purchased the forwards to hedge against the ruble denominated Treasury debt. However, western investors have argued that the two issues must be treated separately. Deputy Finance Minister Mikhail KASYANOV said there were several options that could be included in a compromise, including a plan to treat foreign and domestic investors equally. One bank

executive said, "I don't know if the two sides are getting any closer, but it's good to know they're still talking." KASYANOV noted that the government's economic plan depends on a resolution of the negotiations. "The domestic debt is the chief element of the settling of payments. The next one will be the problem of the external debt. It's in the interest of both the Russian and Western sides to reach agreement as soon as possible."

Boos Predicts October Tax Revenues

· As of October 28th, Russia's Federal budget tax revenue amounted to 12.2 billion rubles in cash. Russian State Tax Service Chief Georgy BOOS said tax revenues within the entire month is predicted to reach 13 billion rubles, with the planned target being 9.5 billion rubles. He noted that the maximum rate of income tax on an annual income of 240,000 rubles will be 35 percent. The rates of income tax will be set at 12, 15, 20, 25, and 35 percent, depending on an annual income. In the process, a sum of four minimum wages is to be exempt from taxation if a person's incomes run at 5,000 rubles a year, three minimum wages—with an annual income ranging from 5,000 to 10,000 rubles, and one minimum wage —with an annual income being between 10,000 and 60,000 rubles. At present, two minimum wages are exempt from taxation, with a person's annual income being less than 5,000 rubles and one minimum wage if annual income wages is between 5,000 rubles and 20,000 rubles.

Ruble = 16.06/$1.00 (NY rate)

Ruble = 16.06/$1.00 (CB rate)

Jun Jul Aug Sep Oct

When you need to know it as it happens

Politics-Economics-Business

Page

Friday

October 30, 1998

Intercon's Daily

Business

Russia May Create A National Oil Company

· Russia's Fuel and Energy Minister Sergei GENERALOV, attending an energy conference in South Africa, said that Russia was considering forming a national oil company by merging state oil firm Rosneft with Slavneft and Onako. Russia owns 100 percent of Rosneft, has an 85 percent stake in Onako, and a 77 percent stake in Slavneft, a joint venture with Belarus ,which owns 11 percent. GENERALOV said, "One of the options is that the government is going to create a national oil company, maybe in the next year. It's one of the possible options, and not a deal for immediate implementation. It's not a decision. It's one of many ideas." He added that privatizing Rosneft is still an option. A sale of Rosneft was canceled in May due to the lack of bidders and low world oil prices, and another attempt to sell a stake was indefinitely postponed in October by Prime Minister Yevgeny PRIMAKOV. At that time, PRIMAKOV said Russia will not accept knock-down prices for its remaining industrial treasures. Rosneft president Sergei BOGDANCHIKOV said that the company might be worth up to $3 billion if offered for sale in two years. Energy represents Russia's most important sector, bringing in 48 percent of hard currency earnings in 1997.

Diamond Production Predicted To Increase

· Head of the Russian Economics Ministry Department on Precious Metals and Stones Nikolai KOLMOGOROV today released a report at the first international conference on the present-day strategy of the Russian diamond mining sector (RDMS) which predicts an increase in diamond productions. By the year 2005, the production of diamonds in Russia will increase by 60 percent the result of bringing new diamond mines into operation and technically reequipping the operating ones. Production is to run at $2.2 billion (as against $1.4 billion in 1997). KOLMOGOROV said the Economics Ministry together with the Finance Ministry had developed a plan called Concept of a Reform and Further Development of RDMS in the Period until 2005. The draft Concept is under consideration in the Expert Council to the Russian government. Last year, Russia's diamond-cutting plants produced $588 million worth of cut diamonds. Over the first nine months of 1998,

$434 million worth of cut diamonds were exported, KOLMOGOROV said.

European Republics

IMF Grants Ukraine New Loan Installment

· The International Monetary Fund (IMF) on Thursday approved a $78 million installment as part of its $2.2 billion loan to Ukraine. The IMF board, which voted to extend the installment, recommended that Ukraine speed up its structural reforms. A spokesman said the Ukrainian government remained committed to its economic reform program, despite a "difficult environment" in the region. The payment was expected earlier this month had been delayed, while the IMF waited for new economic data and for a restructuring deal between Ukraine and Chase Manhattan Bank. The spokesman said, "The recent restructuring of Ukraine's short-term obligations to external creditors gives the authorities and opportunity to focus on economic and financial reforms. The strengthening of public finances and the acceleration of structural reforms are to be accorded high priority." The deal with Chase Manhattan provides for paying 25 percent in cash and 75 percent in dollar-denominated two-year Eurobonds. In order to stay on track with requirements of the $2.2 billion loan, Ukraine must maintain a minimum level of foreign exchange reserves. Ukrainian officials say they might seek to amend the existing program to take in account of changes in the economic climate due to Russia's economic and financial crisis.

Meanwhile, Ukrainian President Leonid KUCHMA suggested printing gryvnias. Itar-tass reported that, "During a meeting today [Thursday] with heads of local administration, the head of state stated that it was necessary to start the printing presses." KUCHMA believes there is more room for increasing the money supply. He noted that Ukraine's monetary supply did not exceed 13 percent of its gross domestic product.

Lith. Seeking Fast-track EU Membership

· Lithuanian President Valdas ADAMKUS reiterated his call on European Union (EU) countries to acknowledge the accomplishments of the Baltic State and invite it for fast-track EU membership talks. Lithuania is one of five eastern and central European countries which have been put on the second-tier of

When you need to know it as it happens

Politics-Economics-Business

Page

Friday

October 30, 1998

Intercon's Daily

EU accession negotiations, but ADAMKUS said he hopes his country's prospects will be upgraded at a mid-December Vienna summit, Reuters reported. ADAMKUS said, "We are stable," and that Lithuania provides, "security and stability in the region."

South Caucasus & Central Asia

Georgia-Abkhazian Talks Resume

· Peace talks between representatives of the Georgian leadership and personal representatives of Abkhazia's leader, Anri DZHERGENIYA, continued in Tblisi today. The talks are a follow-up to the confidential meeting in the government residence in Tblisi on Thursday between DZHERGENIYA and the Georgian State Minister Vazha LORDKIPANIDZE. They discussed ways of settling the conflict between Georgia and its breakaway autonomy Abkhazia, the return of refugees to Abkhazia, and the organization of a meeting between Georgian President Eduard SHEVARDNADZE and Abkhaz leader Vladislav ARDZINBA. SHEVARDNADZE said that he would examine the process and results of the talks in Tblisi and develop his own proposals.

AES Corp. Wins Stake In Telasi

· AES Corp. has won a bid to acquire a 75 percent interest in Telasi, the electricity distribution company of Tblisi, Georgia. The deal is worth $25.5 million. In a company press release, AES said it will acquire the stake from the Georgian government, which sold the stakes through a competitive bid process. Telasi serves 370,000 industrial, commercial and residential customers or roughly half of the total power users of Georgia. The company does not operate power plants. Instead, it purchases power from the state-owned utility Sakenergo and several hydro-electric stations. AES will also have the right to purchase some of the hydro facilities.

Turkey-Turkmenistan Sign Gas Deal

· On Thursday, Turkish President Suleyman DEMIREL and Turkmenistan's President Saparmurat NIYAZOV signed an intergovernmental gas agree

ment. Turkmen will provide Turkey with 16 billion cubic meters of Turkmen natural gas annually. The two countries plan to increase the deliveries up to 30 billion cubic meters. The agreement is effective for 30 years. It provides for the construction of a trans-Caspian Turkmenistan-Turkey-Europe gas pipeline that will run across the Caspian sea and the via Azerbaijan and Georgia. Royal/Dutch Shell and the Enron Corporation have been conducting feasibility studies for trans-Caspian and trans-Iranian pipelines to Turkey. Shell's plan calls for a pipeline costing nearly $4 billion to pass through Iran and then Turkey. Enron's pipeline costs $2.8 to $3 billion. DEMIREL noted that, "The agreement will help make Turkmenistan's vast gas resources usable and contribute to the welfare of that nation." Turkmenistan's economy has been hit severely by a halt of gas exports to other former Soviet nations in 1997.

Kazakh-Uzbekistan To Sign Economic Deals

· Visiting Kazakh President Nursultan NAZARBAYEV and Uzbekistan's President Islam KARIMOV are expected to sign a package of economic deals at their summit today. The Presidents plan to discuss bilateral relations and opportunities to develop economic and political cooperation. Talks will also focus on international and regional security problems, particularly the situation in Afghanistan, as well as the future of the drying out Aral Sea. Bilateral trade totaled $300 million in 1997. It reached $100 million in the first quarter of 1998. Kazakhstan is the third largest trader with Uzbekistan after Russia and Ukraine.

AIPC-Kazakh Sign Drilling Agreement

· American International Petroleum Corporation (AIPC) and Kazakhstan's government signed contracts for the drilling, testing, and completion of the Altai No. 1 development well in the Altai seismic anomaly. AIPC said that the company owns 70 percent of the well and Kazakh companies own the remaining 30 percent. The well will reach a depth of 3,000 feet to the test the upper and lower Eocene formation, the Dow Jones Newsline reported.

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

Politics-Economics-Business

Page