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

Tuesday, October 6, 1998

early presidential and parliamentary elections, SHMAKOV said. He announced that trade unions were ready to back Prime Minister Yevgeny PRIMAKOV's economic program, giving the top priority to the development of the national industry. "We now come up with our proposals for the new government program, but in the current situation we are awaiting specific deeds rather than new statements from the Cabinet," he said. Interior Minister Sergei STEPASHIN stated he will not allow the nation's highways and railways to be blocked and will respond, "with the necessary measures," should attempts be made to destabilize the country.

Nuclear Plants Running Out Of Fuel

· Rosenergoatom President Yevgeny IGNATENKO said Monday that three of Russia's nine nuclear power plants are critically short of fuel. The fuel stores of Smolenskaya, Kurskaya and Leningradskaya plants will last for a week, normal supply being for a month. IGNATENKO said other plants had fuel stores for a month-long operation, but ideally each nuclear power plant should be stocked for a few months to a year of work. He explained that the fuel shortage is due to Russia's general crisis because the nuclear plants are unable to buy fuel from producers. Russia's nuclear authority Rosenergoatom owes close to 15 billion rubles to fuel suppliers, while electricity consumers have logged a 18 billion ruble debt to the nuclear energy concern. IGNATENKO said every effort has been taken to keep the fuel-deficient plants going. On Saturday,

Russian Federation

Politics

Cabinet Close To Completion

· Russian President Boris YELTSIN today appointed Viktor ORLOV as Russia's Minister of Natural Resources by Presidential decree. ORLOV returns to the post after being dismissed in late April as part of the out going government of Viktor CHERNOMYRDIN. The Ministry of Natural Resources holds partial responsibility for issuing mining and prospecting licenses, in addition to other duties. With ORLOV's reappointment, the Cabinet of Prime Minister Yevgeny PRIMAKOV is almost complete. The only vacancy is the post of the Anti-Monopoly Minister. YELTSIN on Monday signed a decree relieving Nikolai PATRUSHEV of his duties as the President's deputy chief of staff and head of the Chief auditing directorate of the President of Russia.

All Russia Protest Set For Wednesday

· Chairman of the Federation of Independent Trade Unions (FNP) Mikhail SHMAKOV said today that the all Russian strike to take place Wednesday will put forward economic and, "political demands advanced by various political parties." He predicts that nine million people will participate in strikes and 25 million in marches across Russia. A priority demand for the Union is payment of wage arrears. He said, "The problem of debts, wages and working places appeared not today and not on August 17, it has been gradually developing in the country during the past few years, but all the trade union proposals had been practically rejected." In SHMAKOV's opinion, executive and legislative branches of power are to blame for the present situation, as "many laws which could guarantee economy's stable development do not work, and many are not passed, such as, in particular, the law on the minimal salary." That is why during the looming meetings the trade unions will demand

Today's News Highlights

Russia

Aeroflot Seeking Cargo

NASA Purchase Research Time

Rus-Vietnam To Build Refinery

European Republics

Latvia Finishes WTO Application

Rus-Ukraine Union Party Legal

South Caucasus & Central Asia

CanArgo Receives IFC Funds

CIS Debt To Gazprom

Kazakh Bankruptcy For Econ.

Politics-Economics-Business

Page

Tuesday

October 6, 1998

Intercon's Daily

a decision was made to convene their directors and leaders of Rosenergoatom and the Atomic Energy Ministry for an emergency meeting in Moscow.

Russian Defense Minister Visits Greece

· Russian Defense Minister Igor SERGEYEV has arrived in Athens, Greece at the invitation of his Greek counterpart Apostolos TSOCHATZ-OPOULOS for a five day visit. Greek government spokesman Dimitrios REPPAS said his visit is an important event. "We want to develop cooperation with Russia at all levels," REPPAS said. SERGEYEV will hold talks with leadership of the Greek Defense Ministry, President Constantinos STEPHAN-OPOULOS and Prime Minister Constantinos SIMITIS. SERGEYEV will visit the sections of Russia's Rosvooruzheniye company and of other countries at an exhibition, Defendori International-98, opening in Piraeus today. The Russian S-300PMU-1 air defense system will rival the US Patriot in a tender during the exhibition, and Greek leaders will be shown new Russian missiles. Greece has allocated four trillion drachmas ($12.2 billion) for arms purchases, Russia being among those invited to the tenders. Among all NATO members, Russia cooperates with Greece most successfully in the military sphere within the framework of the Founding Act on Russia-NATO relations.

Economy

Ruble = 15.7944/$1.00 (NY rate)

Ruble = 15.8/$1.00 (CB rate)

Maslyukov Blames IMF For Crisis

· Russian First Deputy Prime Minister Yuri MASLYUKOV said that the International Monetary Fund (IMF) was partly to blame for Russia's economic crisis. He believes the Fund should make amends by providing billions of dollars in further loans. He said, "We fell into this hole not only because of ourselves, but also thanks to the skillful consultations of our partners from the IMF. We must be understood, and we must receive aid. We demand this aid." Russia's Finance Minister Mikhail ZADORNOV and Central Bank Chairman Viktor GERASHCHENKO are attending meetings this week in Washington with IMF officials and the World Bank. They hope to win the IMF's approval for the release of the second installment of the $22.6 billion rescue package. Russia needs at least $5 billion before the

end of the year to meet its foreign debt obligations ($3.5 billion) and pay off delayed state-sector wages and pensions.

Comment: Western nations have lent Russia money with promises for future economic reforms. Now, the failure to enact these promises have taken Russia to the brink of economic and financial collapse. Its needs for funding faces challenges before the IMF. The IMF is considering focusing its strained reserves on supporting Brazil, which is experiencing repercussions from the Asian crisis. Brazil is a larger trading partner of the US and is the keystone to the Latin American markets. With the crisis looming closer to the US' doorstep, the CLINTON Administration will no doubt focus more attention on its neighbors which have political mandates in place for firm reform measures. The old cold war foes reconstituted in the Kremlin are unwilling to take the necessary economic reforms in Russia. These men provide no incentive for the IMF to give into Russia's demands.

Oil Barons To Call For Zadornov's Removal

· Russia's oil barons, the influential head of 13 major Russian oil companies sent an appeal to the government on Monday offering causes of the economic crisis and criticizing the government's proposed emergency budget for the fourth quarter. The document names three causes of the crisis: "an erroneous economic policy of the state which infringed upon the rights of the real economy; an unfavorable tax regime and a dramatic deterioration of the market situation due to the sharp drop in oil prices on the world markets." The oil industry leader rejected a policy of increasing pressure on their companies. They said that if policies proposed by the Finance Ministry were carried out, they would use all of their resources to secure the resignation of Finance Minister Mikhail ZADORNOV. Yukos vice president Vasily SHAKHNOVSKY said that if tax policies were not changed, output would shrink by up to 18 percent next year. Russia is the world's third largest oil producer. The Finance Ministry proposals induce export tariffs on oil and natural gas, index excise duties on oil to the ruble's value against the dollar. LUKoil vice president Leonid FEDUN said, "Introducing export tariffs would lead to a huge growth in oil companies' debts to the budget." He added, "The policies of the International Monetary

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

October 6, 1998

Intercon's Daily

Fund (IMF) must be urgently reviewed, because this sharp monetarism is only good for developed economies and is ruinous for developing economies."

Business

Aeroflot Reduces Cargo Rates

· Aeroflot's Washington station at Dulles Airport is offering reduce rates for cargo transport. Station Manager Vyacheflav ZAKKHAROV said, "If someone gives us 6,000 kilos, we'll give them the space for $1.60 a kilo;" the normal rate is $2.80 a kilo. Aeroflot is looking for computer and technology traffic, but at this point it is not choosy. "We're interested in anything deliverable. We have lots of space for the cargo. It's no problem." The nonstop flight from Dulles Airport to Moscow's Sheremetyevo Airport Monday through Friday has been departing with an average of 1,000 kilos of cargo, mostly autoparts and foodstuffs. The Journal Of Commerce reports that several years ago Aeroflot cargo flights took off with musical equipment, computers, and telecommunications equipment. The major concern among shippers are delays up to two weeks on the Moscow end to recover cargo. ZAHKAROV says, "Aeroflot has its own cargo house and security staff. Right now, the flight arrives at 2 pm and you get your cargo the same day. There's no problem."

NASA To Buy Research Time From Russia

· In a deal worked out last week between officials of the National Aeronautics and Space Administration (NASA) and the Russian Space Agency, NASA has agreed to buy Russia's allotted research time aboard the International Space Station for $60 million. The deal remains to be approved by US lawmakers, as it spells redistribution of funds between NASA programs. The funds will keep the Russian space program alive with its scientists engaged in the project rather than searching for foreign work. According to a NASA press release, the ISS board at its meeting in Moscow reaffirmed the original schedule of launching two first ISS components. Russia's functional cargo module Zarya will be launched in orbit on the Russian-made Proton booster from Baikonur on November 20th. The US will launch its connecting node Unity on Endeavor shuttle from Cape Canaveral, Florida, on December 8th.

Rus-Vietnam To Build Refinery In Vietnam

· Russian Zarubezhneft company and Vietnamese Petrovietnam are expected to sign a contract on

October 15th to build the first oil refinery in Vietnam. The deadline was agreed to during talks in Hanoi last week. The main problem, which is the distribution of duties between Zarubezhneft and US contractor company Foster Willer Corp, has been solved, Zarubezhneft company chief expert Sergei OMELCHENKO said. According to him, "Russian companies will receive a lot of orders for the design and construction of the plant." Both sides plan to reduce this year's investment in the project by about 20 percent due to delays. The initial plan called for $65 million to be invested in 1998 as charter capital for the joint venture that will build and operate the refinery. Overall capital investments in the project are estimated at $1.3 billion. The refinery will have processing capacity of 6.5 million tons of crude, with product yield from crude of 90 percent.

European Republics

Latvia Completes WTO Application Round

· Latvia has completed its five-year bid to join the World Trade Organization (WTO), after the US decided not to block its entry. The US had opposed its membership because of differences over the country's audiovisual policy. For many months the US had pressed the small Baltic nation of 2.4 million not to take an exemption from global rules pertaining to trade in audiovisual services, The Journal Of Commerce reported. According to trade officials familiar with the final working party examining Latvia's bid, its service schedule, which included exemptions on audiovisual services such as the production and distribution of cinematography and television programs was adopted. Latvia also took exemptions on trade in transportation services, including road, passengers and freight. The final report on Latvia's bid is slated for WTO approval on October 14th.

Rus-Ukrainian Union Party Legalized

· The Russian-Ukrainian Union party has achieved registration at the Ukrainian Ministry of Justice and is thus able to participate in the nation's political life. From its de facto creation to its recognition dejure, the process took about two years. The Russian-Ukrainian Union party was created at a founding congress, held in Kiev early in 1997. It includes 18 regional branches. Leader of the party Ivan SIMONENKO said, "We have passed through all judicial authorities on all levels: from a district court to the Supreme Court of Ukraine and the Prosecutor-

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

October 6, 1998

Intercon's Daily

General's Office." He explained that, "The shallowness of the reasons, for which our registration documents were turned down, became obvious even to bureaucrats from the judicial authorities after parliamentary elections were held in Ukraine last March. The authorities just got afraid of their own people, who want the restoration of the broken relations with Russia and whose aspirations are expressed by our party."

South Caucasus & Central Asia

CanArgo Receives IFC Funds For Georgia

· CanArgo Energy Corporation announced Monday that the International Finance Corporation (IFC) has approved funds to finance CanArgo's subsidiary's development plan in Georgia. The IFC will provide a $6 million loan to CanArgo's subsidiary, Ninotsminda Oil Company. The funds will be utilized to further develop the Ninotsminda field in Georgia. Chairman and Chief Executive Officer of CanArgo Dr. David ROBSON stated, "Since we initiated discussions with the IFC last August, we have been enthusiastic about their involvement in our Ninotsminda project. In addition to providing the capital to accelerate our development plan, it supports our confidence in the Republic of Georgia." IFC, part of the World Bank Group, fosters growth in the developing world and in emerging economies by financing private sector investments, mobilizing capital in the international financial markets, and providing technical assistance and advice to governments and businesses. CanArgo Energy Corporation is an independent oil and gas exploration and production company operating in Eastern Europe and Asia.

Euro-Atlantic Partnership Council Meets

· Belarus, Lithuania, Latvia, Ukraine, and Azerbaijan have sent representatives to a three-day seminar of the Euro-Atlantic Partnership Council which opened in Athens on Monday. The seminar is attended by 70 representatives from NATO member states and countries participating in the Alliance's Partnership for Peace program. The seminar aims to identify the most important areas of relations be

tween civilian and military authorities in order to ensure the fulfillment of all tasks of the future multipurpose peacekeeping operations. Participants will be addressed by international organizations, research institutes and military experts.

CIS Debt To Gazprom Total $2 Billion

· President of Russia's gas giant Gazprom Rem VYAKHIREV estimates that the debt of Commonwealth of Independent State (CIS) nations as of June 1st totaled $2 billion. He addressed an international conference on the development of gas industry. As the social and economic situation in the CIS countries is very complicated, Gazprom's leadership is considering various measures to settle payments for the delivered gas, including debts' rescheduling and repayment by goods and services. VYAKHIREV noted that almost all gas to Europe passes through Ukraine. Gazprom pays to Ukraine with its gas and, "we have the right to expect that our transit to third countries will be guaranteed," he stressed. Russia annually delivers to CIS and Baltic states 72 or 73 billion cubic meters of gas. Ukraine receives 70 percent of these volumes.

Kazakh Plans Bankruptcies To Boost Economy

· Kazakh Deputy Finance Minister Orazaly YERZHANOV said his nation will resort to massive bankruptcies of loss-making companies in an effort to stimulating business activity in some targeted industries. He said, "Some 1,000 firms will run into bankruptcy this year." Companies from the Soviet-era machine-building, light and food industries may encounter the bankruptcy procedure. YERZHANOV said new owners of bankrupt firms will be relieved of all the debts of the loss-making companies they bought. "Even if they buy these companies for just one tenge a piece, they will get firms free of any debts, and it will be possible to launch new kinds of production using the existing facilities," he said. Prime Minister Nurlan BALGIMBAYEV said last month Kazakhstan's government would grant annually a total of $100 million in loans to local firms producing manufactured goods able to replace similar imports.

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