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, November 20, 1998

interregional, and public relations. Before his dismissal from the YELTSIN government, he has advised the President to nominate Moscow Mayor Yuri LUZHKOV as prime minister rather than Viktor CHERNOMYRDIN, the leader of Our Home Is Russia. On the same day, CHERNOMYRDIN said that he might back LUZHKOV in the upcoming presidential elections. He said that it is time for politicians to unite, adding "No good will come if we pull apart."

Duma Drafts New START-II Treaty

· In an effort to pass the START-II Treaty, the Russian State Duma has drafted its own version of the START-II nuclear disarmament Treaty. Hard-line deputies, mostly Communists, have delayed ratification of the original version because they say Russia does not have the money to replace nuclear stockpiles which would be destroyed under the Treaty. Duma speaker Gennady SELEZNYOV believes the new version will pass because it, "stipulates several conditions which would ensure Russia's national security." The new document would guarantee financing for nuclear arms after START-II is implemented. "Russia's military doctrine should be implemented and that our State must pursue a policy of creating a new type of armament to ensure Russia's full security." He added that the new law is being worked out by the Duma Committee on Defense in conjunction with the Foreign Ministry and the government. Duma Committees will discuss the draft for 10 days. Deputies have requested that President Boris YELTSIN study the treaty before they begin

Russian Federation

Politics

Yeltsin To Meet With Putin Over FSB Scandal

· Russian President Boris YELTSIN today held a working meeting with director of the Federal Security Service (FSB) Vladimir PUTIN at the residence Gorky-9. President press secretary Dmitry YAKUSHKIN said the sides touched on issues connected with the activity of the Federal Security Service. PUTIN rejected accusations made this week by FSB officers that they were ordered to assassinate tycoon Boris BEREZOVSKY. He admitted that some security officers had proposed to his predecessor Nikolai KOVALYOV, "to organize the work outside the framework of the law." Earlier this week, BEREZOVSKY sent a letter to PUTIN, quoting some FSB officers who claim they had been ordered to kill the businessman. PUTIN said, "A criminal case has been instituted which is being investigated by military prosecutors. However, there is only [BEREZOVSKY's] statement in the file." He noted that, "We have their written proposals to the ex-director of the FSB," and will turn them over to prosecutors soon.

On Thursday in Moscow, Alexander GONTOV, a coal industry adviser to Kemerovo Governor Aman TULEYEV and a bank board member, was found shot in the head several times with an AK-47 rifle. It is not clear whether the assassination of GONTOV is related to the accusations that FSB officers are given orders to murder prominent businessmen.

Former Yeltsin Appointees To Support Luzhkov?

· Russian news agencies reported on Thursday that former presidential spokesman Sergei YASTRZHEMBSKY may replace retiring Deputy Mayor of Moscow Ernest BAKIROV. YAS-TRZHEMBSKY would be in charge of international,

Today's News Highlights

Russia

Gov't To Guarantee Savings?

Oil Exports Restricted

ORT Television Assets Seized

European Republics

Belarus To Get Mobile Network

New Ukrainian Ambassador

Kuchma For Printing Money

South Caucasus & Central Asia

Caucasus Fund Invests $92M

Turkey Limits BP, Amoco Sales

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November 20, 1998

Intercon's Daily

discussing it in December. The US Senate has already ratified the original version of the Treaty.

US Senator Richard LUGAR of Indiana, visiting Russia to monitor the country's disarmament program, blasted the Duma's plans for additional conditions. He said "To add an item such as no nuclear weapons in the Baltics, or something of this variety, as a condition clearly would be unacceptable," adding that Washington, "will accept no additional conditions [to the treaty]."

Economy

Ruble = 17.2/$1.00 (NY rate)

Ruble = 17.2/$1.00 (CB rate)

Jun Jul Aug Sep Oct Nov

Maslyukov To Request IMF Debt Restructuring

· First Deputy Prime Minister Yuri MASLYUKOV today will meet with head of the International Monetary Fund (IMF) delegation, Jorge MARQUEZ RUARTE tonight. MASLYUKOV said they would discuss Russia's program for economic and social stabilization, the IMF's anti-crisis recommendations, the restructuring of Russia's $4 billion to $5 billion debt, and the release of the next installment of a $22.6 billion loan. The IMF delegation has already held consultations with leaders of the Russian Central Bank, Economics Ministry, Finance Ministry, State Tax Service and other federal agencies. The Russian government presented its stabilization plan to the IMF team during its previous visit to Moscow on October 27th. The government was to make IMF-recommended changes and additions to the plan, or a cut in the budget deficit, trimming the spending by

reducing the excessive welfare and restoring the Russian Pension Fund to the paying capacity. Deputy Finance Minister Oleg VYUGIN said that the government will seek new loans from the IMF for the whole amount of payments due next year. The government's total foreign debt payments for 1999, is estimated to be $17.5 billion. MASLYUKOV and MARQUEZ RUARTE will also discuss Russia-IMF relations in 1999 and 2000.

Government To Guarantee Savings?

· In a vote of 362 to 2, the Russian State Duma approved a revised bill that would require the government to guarantee all household savings in Russia's commercial banks. The bill first rejected by the Federation council will go back to the upper house for a vote. Currently, the government guarantees private savings held in the state savings bank Sberbank, which holds about 80 percent of the nation's savings. Depositors were allowed for a period to transfer their accounts to Sberbank to receive this guarantee. Central Bank chairman Viktor GERASHCHENKO said the bill contains "empty promises." GERASHCHENKO said the government would need about 85 billion rubles to pay private depositors. "It is impossible to guarantee the payment of all debts to everybody. The mandatory reserves, whose total sum is 18 billion rubles, will not be enough for paying those debts...There is no money for that in the budget."

Six Oil Companies' Exports Blocked

· Russian Fuel and Energy Minister Sergei GENERALOV has temporarily blocked crude oil exports by six oil companies until they produce plans to supply domestic refineries. He only provided the names of five companies: Sidanko, Rosneft, Slavneft, Tatneft, and Onako. GENERALOV said that access to transit lines will only be restored after the companies provide Transneft pipelines a schedule for domestic deliveries. First Deputy Prime Minister Yuri MASLYUKOV said that oil companies will not be permitted to boost exports at the expense of deliveries to domestic refineries. He said that leaving oil refineries without oil, "seems to be of little interest to the oil companies' management, although they are the main employers in these cities, and irreparable harm could be done." The Fuel and Energy Ministry has suspended exports of 50,000 barrels per day in November by Sidanko for its failure to supply crude to its Angarsk refinery.

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Business

Russia, Vietnam Sign Oil Refinery Deal

· Russia's Zarubezhneft and Vietnam's Petrovietnam in Hanoi finalized a May agreement by signing a contract to build and operate Vietnam's first oil refinery. Vietross Refinery in Dung Quay the industrial zone of Quang Ngai province will have an annual capacity of 6.5 million tons of oil. It is expected to begin operating in 2001 and reach full capacity in 2004. Under the joint venture agreement both sides will contribute $400 million in equity with an additional $500 million to $600 million being sought in loans and export credits. Vietnam will use export revenues for its contribution, while Russia will use revenues from its existing joint venture Vietsovpetro, the Financial Times reported. Vietnam's deputy prime minister Ngo Xuan LOC described the agreement as, "an historic milestone." The project is Vietnam's largest single industrial development and is politically important to the government for its strategic value.

ORT Television's Assets Seized

· On Thursday, Russia's Chief Bailiff Boris KONDRASHOV seized the assets of Russia's largest television company, ORT Television, in which the government owns 51 percent and the remainder is held by private investors including Boris BEREZOVSKY. The arrest of ORT's property was launched on the basis of a resolution passed by the Ostankino Moscow District Municipal Court which ruled that ORT Television pay 122 million rubles owed to the Ostankino TV Broadcasting Center. Since the ORT bank accounts were empty, bailiffs were ordered to seize ORT's property, including company cars. ORT Director General Igor SHABDURASULOV said ORT owes a total $75 million and is owed "significantly more." After taking an inventory of ORT assets, Chief Moscow Bailiff Aleksei MIROSHNICHENKO said that ORT Television may use all its arrested property, including transport vehicles under a special agreement with the Justice Ministry. The inventory was prepared so that the debtor company can not sell or dispose of its property in any other way. Deputy Government chairpersons Vladimir BULGAK and Valentina MATVIEYENKO declared that the state does not intend to throw one of the biggest Russian TV companies, at the mercy of fate and will discuss a packet of possible stabilization measures in the near

future. The federal department for affairs of insolvencies and financial recovery has been instructed to thoroughly study an extent to which ORT Television is running the risk of going bankrupt and what the government should do to prevent bankruptcy of the ORT company. ORT Spokesman Girgory SIMANOVICH said, "An absurd situation has emerged when government institutions sue a TV company that is more than 50 percent owned by the government." Friday's news program only lasted three minutes as ORT could not provided the needed number of news reels to finish the program. SHABDURASULOV said, "Our news broadcasts may amount to reading news agency reports. In the worst case scenario, we may display text saying that ORT cannot keep viewers posted on the latest developments." He noted that other television companies have been offering their own reels to ORT on the gratis basis. ORT reaches 98 percent of Russians and played a key role in securing Russian President Boris YELTSIN's reelection in 1996. The battle for control of the station comes just ahead of 1999 parliamentary elections and presidential elections in 2000.

Meanwhile, first deputy head of the President's administration Oleg SYSUYEV has blamed former security officer Alexander KORZHAKOV for accusations that 25 percent of ORT Television was transfer from the government to YELTSIN in 1994 for a period of three years. He said, "The president does not know about any such riches in his hands." BEREZOVSKY confirmed that such a transaction took place, but that more details needed to be provided for a full explanation.

European Republics

Belarus To Establish Mobile Network

· Belarus has awarded a ten year contract to Mobile Digital Communications (MDC), a consortium led by SB Telecom a Swiss-based group, to establish its first GSM mobile telephone network, the Financial Times reported. SB Telecom holds a 49 percent stake in the new Belarus venture. Beltelecom, the state-owned telecom utility has 31 percent and Beltechexport, a private Belarus trading and investment company has 20 percent. The mobile phone networ will be operational in Minsk in early 1999. MDC plans to provide service to 50 percent of the

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population and the main cities within 18 months. Investment in the network is expected to total between $150 million and $20 million by the end of 2002. The group hopes to attract 120,000 subscribers within three years.

New Ukraine Ambassador To US And Mexico

· Ukrainian President Leonid KUCHMA has appointed Anton BUTEIKO to be Ukraine's ambassador to the US and Mexico. This career diplomat as served as first deputy foreign minister since 1995. BUTEIKO has also held positions in the Soviet Union's foreign ministry, the UN, and other international organizations. He replaces Yuri SHCHERBAK, who is moving on to another position.

Kuchma Urges Printing Gryvnias

· Ukrainian President Leonid KUCHMA has called for printing money and stripping the Central Bank of its independence. He says these measures are necessary due to a "significant worsening of the economic situation." KUCHMA said, "We need to inject more payment tools into the economy where money has stopped serving its primary goal." He accused the Central Bank of trying to profit from operations with government bonds instead of providing loans to businesses. KUCHMA also pointed out that low tax collections and lack of economic reforms also contributed to the nation's economic fall out. He urged law makers to adopt a special bill on the Central Bank and its supervisory council in order to gain more control over bank policies.

South Caucasus & Central Asia

Caucasian Fund To Invest $92M In S. Caucasus

· In a meeting with Georgian President Eduard SHEVARDNADZE, chairman of the investment committee of the US Caucasian Fund Peter ALDRIGE said that the committee intends to invest $92 million in the South Caucasus. The Caucasian Fund was founded on September 22, 1998. It is engages in investing funds in the economy of Georgia, Azerbaijan and Armenia. According to the Georgian President, the creation of the fund is a historic fact for

the South Caucasus, since the attraction of investments is one of the biggest problems in the initial stages of building a state.

Today, Armenian President Robert KOCHARYAN is expected to arrive in Tblisi to discuss bilateral cooperation, as well as the general situation in the Caucasus with SHEVARDNADZE.

Turkey Plays Hard Ball For Baku-Ceyhan Route

· Turkey's Energy Ministry has advised its state oil refinery Tupras to limit oil purchases from British Petroleum (BP) and Amoco in protest of their opposition to the Caspian pipeline route Baku-Ceyhan. One official said, "This is not an embargo. A multi-ministerial meeting has decided to recommend Tupras to use resources other than BP and Amoco as much as possible...This recommendation will remain until further notice." BP says that it hasn't been informed of such restrictions. Turkey said the decision was made after BP and Amoco said that the Baku-Ceyhan route's price tag of $4 billion was too much in comparison to other cheaper alternatives. Azerbaijan International Operating Consortium (AIOC) in December is expected to make a recommendation to the Azeri government that has the final say on the main export route. BP, in an alliance with Norway's Statoil in the AIOC with a total of 25.6 percent share and due to take over Amoco at the end of the year. After the merge takes place, BP-Statoil's share in AIOC will rise to nearly 43 percent. Their stance is that low oil prices and disappointing production from the Caspian does not justify along term investment in the Baku-Ceyhan route. A BP spokesman said, "This kind of talk is unlikely to help with the decision on the route. We are surprised and disappointed to be singled out in such a way," pointing out that there are 10 other international members of AIOC. All consortium members except Turkish TPAO favor a shorter route from Baku to Supsa. BP says this restriction will have little impact on its overall business. Earlier, Turkey was pressuring consortium members to choose their route by increasing tariffs on tankers passing through the Bosporus Straits.

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

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