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 9, 1998

Russian Federation

Politics

Yeltsin Urges Boost To Caspian Sea Talks

· Russian President Boris YELTSIN in interviews with Russian, Tajikistan and Uzbekistan news agencies said that the status of the Caspian Sea within international laws should be worked out sooner. "This is in the interests of all littoral states," he said. Russian and Kazakhstan signed a bilateral agreement on the delimitation of the bed of the Northern part of the Caspian Sea in July 1998. The agreement opens good prospects for Russia-Kazakhstan cooperation with the participation of other countries in prospecting for and development of Caspian oil. "Ways of transportation of Caspian oil to world markets are a special problem," YELTSIN said. "Different ways are discussed. We believe, just as the Kazakhstan side, that it is important to begin as soon as possible the construction of the transportation system in the framework of the Caspian pipeline consortium. The economic need for this is apparent."

Russia-EU Discuss Economic Stability

· Russian Prime Minister Yevgeny PRIMAKOV met with Chairman of the European Commission Jacques SANTER today and said he was pleased with the outcome of the talks. He said, "During the talks we reiterated the coincidence of our views on the market-oriented transformations in Russia. We both believe that those transformations should lead to the creation in Russia of a socially-orientated, market-based economy. Both the European Union and the Russian leaders are of the same opinion. There are no differences on that issue." PRIMAKOV noted that SANTER's visit is important to Russia, "not only from the symbolic point of view."

SANTER also met with Russian State Duma speaker Gennady SELEZNYOV, who stressed the growing

anxiousness for an anti-crisis program. He said, "You are interested, just as we are, in the betterment of the situation in Russia." SANTER said they had discussed the economic situation in Russia and the problem of how the European Union could help Russia overcome the current critical situation. He stressed that the Union's stability depended on stability in Russia. SANTER recalled that the European Union and Russia had signed an agreement on partnership and cooperation, real substance to which should now be added by concrete deeds. In order to do this, SANTER feels that Russian needs to have an effective banking system.

Economy

GKO Plan To Be Reached By Late October

· Russian Prime Minister Yevgeny PRIMAKOV announced today that a plan to reimburse GKO treasury bills will be defined by late October. PRIMAKOV said this applies both to foreign and domestic holders of GKO treasury bills the payment of which was frozen from August 17, 1998. Treasury bills will be reimbursed, "on equal terms for all," he said. PRIMAKOV stressed the, "government will prove by its actions that Russia can be trusted." He noted that no more statements like the one of August 17th will come from the government and the Central Bank. The leaders of the Russian Finance Ministry and members of the special committee of authorized Western banks which represent the interests of major foreign holders of GKO treasury bills will meet in

Today's News Highlights

Russia

Transfer Deadline Not Extended

Aeroflot Receives Boeing Plane

Gazprom-BP Offer China Gas

European Republics

Rus-Belarus Trade Turnover

South Caucasus & Central Asia

Azeri Pres. Elections On Sunday

Vazirov Appointed Deputy PM

Rus-Kazakh Agree On Debts

Politics-Economics-Business

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October 9, 1998

Intercon's Daily

one of the European countries next week.

US investment bank Lehman Brothers has withdrawn its demand for Russia's hastening repayment of its debt on Finance Ministry bonds, known as MinFins. Lehman Brothers demanded on August 26th that the Russian government redeem the Finance Ministry bonds before maturity, on the grounds that payments on GKO debts were rescheduled after the August 17 default. The bank's lawyers at present claim that the demand was not a lawsuit but a warning about it, seeking to retrieve Russia's debt. The withdrawal of the demand followed an accord between Lehman Brothers and the Russian government. A Lehman spokesman said the accord was not over the ruble-denominated GKO debt worth $10 billion owed to Western creditors.

Ruble = 15.82/$1.00 (NY rate)

Ruble = 15.84/$1.00 (CB rate)

May Jun Jul Aug Sep Oct

Gov't Working On Payments

· Economics Minister Andrei SHAPOVALYANTS said that the Russian government has developed a system to normalize payments. According to SHAPOVALYANTS, they analyzed two directions in the normalization of the payments system. First, budget debts will be paid to the enterprises, which receive money from the budget, and second those enterprises will pay their debts to suppliers. The presidium considered in this connection a possibility of increasing the number of items, on which the non-payments problem for 1997 should be resolved, and

of those on which non-payments accumulated by July 1, 1998. He believes it possible for debts to be paid by December 15th, "within the framework of the emission-free financing of interconnected payment transactions on the basis of attracting finances from domestic sources on a rotation basis." In this way, the 1997 debts worth 50 billion rubles will be paid, which, in its turn, will make it possible for the enterprises, which receive money from the budget, to pay debts to their suppliers, which amount to 150 billion rubles. The second direction is connected with the mutual payment of debts by enterprises. According to SHAPOVALYANTS, mutual debts of enterprises now amount to 1.2 trillion rubles, which makes 40 percent of the gross domestic product. The problem of mutual debts will be settled in the fuel and energy complex, transport and communications.

Transfer Deadline Not To Be Extended

· The Russian Central Bank's public relations department said that the deadline set for transfer of bank deposits from commercial banks Most-Bank, Menatep, Mosbusinessbank, Promstroibank, Inkombank and SBS-Agro to Savings Bank Sberbank, which expires on October 10th, will not be extended. Initially, the deadline set to accept applications for transfer of bank deposits to the Savings Bank was to expire on September 26th, but it was extended for two more weeks. The Savings Bank begins transactions on deposits transferred from the above-mentioned commercial banks starting November 30th.

Business

Baltic Cities Hold Conference In St. Petersburg

· Finland, Denmark, Norway, the Baltic states and Russia are attending the second international conference of the Baltic Sea region's major cities in St. Petersburg to discuss transport and economic integration among other issues. St. Petersburg deputy governor Gennady TKACHEV said the conference will focus on the development of transport ties with Central Asia, including with the use of internal water ways of Russia and the Caspian Sea. The delegates are also expected to discuss the future of the European transport corridor Baltic Bridge and St. Petersburg's port. Special sessions will concentrate on cultural cooperation, environmental protection and municipal economies.

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Norilsky Nickel Urges Equal Treatment

· Director of the public relations department of the Norilsky Nickel Joint Stock Company Igor PLOTNIKOV said Thursday the amount of scrap nickel and non-ferrous metals smuggled by criminal structures out of the country is approximately equal to the company's output. According to PLOTNIKOV, illegal exports through snatch-and-run firms significantly undermines the position of the Norilsky Nickel on the world market. PLOTNIKOV said Russia had piled a tremendous amount of scrap nickel estimated to equal a ten-year output of primary nickel by company affiliates. He called for equality in regards tax and customs regulations for Norilsky Nickel and firms which export nickel-containing scrap metals.

Boeing Plane Leased By Aeroflot Arrives

· The Boeing-777-200 airliner, leased by the Russian Aeroflot company, landed at Shoudu airport in Beijing Thursday, Itar-Tass reported. This is the first Boeing plane serving the Moscow-Beijing air route and the second one obtained by the Russian air company. The use of this plane on the air route linking the Russian and Chinese capitals will make it possible to give up an intermediate landing of wide-bodied airliners in Novosibirsk.

Gazprom-BP Negotiate Gas Exports To China

· Russian gas giant Gazprom and British Petroleum (BP) are separately considering exporting gas to China. Gazprom Chairman Rem VYAKHIREV announced on Tuesday plans to offer the Chinese side a 30-year contract to transport an annual volume of 30 billion cubic meters of gas via a lengthy pipeline. "We plan to deliver gas from the West Siberian Yamal-Nenets region to China's Shanghai, with possible further extension to South Korea," VYAKHIREV said. The pipeline length, 6,500 kilometers (4,030 miles), is seen to be a detriment making the project extremely expensive. One gas analysts predicts that Gazprom will not be able to offer prices lower than those offered by BP/Sidanco because the transportation costs will be high due to the distance. "If the Chinese side accepts our project we will immediately begin to select the team for its implementation," VYAKHIREV said. He believes that Asian countries' banks and companies will mainly participate in the project, with both European and US companies supplying the equipment. VYAKHIREV is confident the Chinese side opt for Gazprom's terms.

Meanwhile, BP and Russian Sidanco, of which BP holds a 10 percent stake, plan to offer the Chinese a route from East Siberian gas field Kovykta to China. A Sidanco spokesman said, "BP and Russia's government are holding talks with China, japan, South Korea, and Mongolia on a joint construction of a gas pipeline from the field to these countries." BP spokesman Ioan STEWART told Bridge News that in the long-term China's demand for gas would provide opportunities for both Gazprom and BP.

European Republics

Rus-Belarus Trade Turnover Expected To Rise

· The trade turnover between Russia and Belarus reached $9 billion at the start of 1998, and is expected to exceed the level of $10 billion by the end. Belarus Prime Minister Sergei LING pointed out at a meeting with a delegation from the Russian Smolensk region that before the two countries formed a union, the turnover had been only $5 billion in 1995. The delegation is headed by Smolensk governor Alexander PROKHOROV. The head of the Belarus cabinet hinted that the growth in turnover was largely due to strengthening and expanding ties with Russian regions. He said Belarus was exporting its products to 79 businesses in Russia, and had signed agreements on cooperation in the spheres of trade and economy, culture, science and technology with a total of 60 Russian regions. According to LING, another step should be made in the development of trade and economic relations between the two Union countries, which is to switch over from reciprocal trading to more comprehensive and efficient forms of cooperation such as setting up holdings, joint enterprises and other joint economic structures.

South Caucasus & Central Asia

Azeri Presidential Elections Sunday

· On October 11th, 4.4 million of Azerbaijan citizens who possess the right to vote, will head to the polls to choose among six candidates for president. The six candidates are incumbent President Geidar ALIYEV of the New Azerbaijan Party, Party of National Independence candidate Eitibar MAMEDOV, Independent Azerbaijan Party's Nizamio SULEYMANOV, Social Welfare Party's Khanhuseyn KAZYMLY, Azerbaijan Communist Party's Firudin HASSANOV, and Association of Victims of Political

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Repression candidate Ashraf MEHTIEV.

The pre-election environment has been fraught with opposition marches to delay the election and strict criticism of President ALIYEV. The opposition demanded reform of the electoral system, democratic elections in Azerbaijan, and urged the population of Azerbaijan to boycott the elections. Today, police arrested and beat a number of protesters opposed to the election, who were attempting to march across Baku. The incumbent's main challenger MAMEDOV has been the most outspoken. He said, "The results of the last five years have shown that the present regime has brought nothing good for the country," according to the Azerbaijan Newsletter. He said, "A thief could run the country better than this," adding that, "we must use only legal means to remove these bloodsuckers." MAMEDOV said if elected his government will concentrate on rebuilding the country's military, which in effect was destroyed during the Nagorno-Karabakh fighting.

Despite MAMEDOV's efforts and those of his competitors, there is little doubt that ALIYEV will win his second term as President. ALIYEV has stressed stability during his campaign, citing the Nagorno-Karabakh cease-fire, rebuilding the economic infrastructure, and attracting foreign investment and international lending. ALIYEV underlined that he wanted to be re-elected under conditions of democracy and justice.

ALIYEV called on heads of local bodies of power to strictly abide by the law in their activities and not interfere in the election process. More than 200 international observers from the Organization for Security and Cooperation in Europe (OSCE) will monitor Sunday's vote and the subsequent vote count. Other international observers will be present from the National Democratic Institute, the International Republican Institute and the Council of Europe. A candidate must receive two-thirds of the vote to become President in the first round.

Vazirov Appointed Tajik Deputy Prime Minister

· Tajikistan's former education minister in 1992 and member of the United Tajik Opposition (UTO) Zokir VAZIROV on Thursday was appointed the Deputy Prime Minister of Tajikistan in charge of social issues and local self- government. He has become the 12th opposition member who has been given a top post. Under the peace treaty, the Tajik opposition will be appointed to 30 percent of the top posts. The opposition is entitled to two more ministerial portfolios, including that of the defense minister. Influential UTO field commander Mirzo ZIZOYEV has been proposed by the UTO for the defense post. Tajik President Emmoali RAKHMONOV met with UTO leader Said Abdullo NURI.

Rus-Kazakh Agree On Financing

· Russian Prime Minister Yevgeny PRIMAKOV on Thursday signed a decision, approving a draft agreement between Russia and Kazakhstan on settling mutual financial issues. In compliance with the draft agreement, the sides recognized the existence of mutual financial obligations: $2.88 billion from the Kazakh side and $2.08 billion from the Russian. The Russian side accrued debts mostly by leasing and operating the Baikonur cosmodrome and other proving grounds. The sides agreed that the compensation sum of property losses and expenses of Kazakhstan for the maintenance and operation of the Baikonur complex in 1992 to 1993 will be decreased by $393.8 million which was spent by Russia to restore fixed assets of the Baikonur complex. Russia and Kazakhstan intend to make one-time payment of mutual financial obligations for a sum of $1.69 billion. The Russian side will stop compensating expenses for Kazakh citizens, living in Baikonur, made by it since 1995 and up to a date of ratification by Kazakhstan of an agreement between the two states on the status of Baikonur city.

The Daily Report on Russia and FSU

will not be published on Monday October 12

in observance of Columbus Day.

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

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