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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, November 25, 1998

Russian Federation


Early Presidential Elections In Russia?

· On Monday, Russian President Boris YELTSIN was forced to hold his "no necktie" summit with Chinese leader JIANG Zemin in the hospital, where YELTSIN was diagnosed with his second bout of pneumonia in a string of illnesses. The change of summit plans triggered fresh speculation about YELTSIN's ability to carry out his functions as President until the end of his term in 2000. Once just battling opposition demands for him to resign, YELTSIN now faces new calls from his allies for his removal. However, YELTSIN stated he is determined to serve out his term. Former prime minister Viktor CHERNOMYRDIN said, "it is important for the country's leadership and the President to be in their places of work." Leader of Our Home is Russia Alexander SHOKHIN said early presidential elections should be held simultaneously with parliamentary elections in September, 1999. He said that early elections, "might assist with constructive reforms in the country and save money...simultaneously." He also called for urgent amendments to dilute the president's power. SHOKHIN said that YELTSIN's, "chain of diseases shows that he cannot fully perform his presidential duties." Krasnoyarsk Territory Governor Alexander LEBED, a possible presidential candidate, disagrees with the call for early elections, calling it "improper." He believes that Russia's presidential election must be held within the Constitution-stipulated time-frame.

CIS Agenda Focuses On Economics

· Russian Prime Minister Yevgeny PRIMAKOV presided over the Commonwealth of Independent States (CIS) Premiers' Council session, opening in Moscow today, instead of Uzbekistan Premier Utkir SULTANOV, who was unable to attend the session.

Russian Minister for Affairs of the CIS Boris PASTUKHOV said that, "At a session of the Council of heads of CIS government today, the Russian delegation will suggest a number of measures to lessen the negative impact of the financial crisis in Russia on the CIS." He noted that the council will focus on measures for stabilization and minimizing the consequences of the crisis. PASTUKHOV stressed that, "no one had managed to reach economic prosperity single-handed yet, which is a fact proved by history. The present crisis showed that integration is necessary and there is a need for coordinated activities of all countries wishing to overcome the crisis." First Deputy Chairman of the government Vadim GUSTOV said that the Council will also concentrate on improving the structure of the CIS. He said, "It is necessary to make it mobile, comprehensible, controllable with a single source of financing and subordinate to the main task: to realize resolutions of CIS presidents." Prime Ministers will also hear a report by CIS Executive Secretary Boris BEREZOVSKY on the progress of a special CIS forum for improvement of inter-governmental work and CIS reforms. BEREZOVSKY plans to present a radical reform scheme, eliminating inefficient structures in the CIS executive bodies, establishing instead centralized management of these bodies and combining economic and political issues. He said, "The CIS has a future, but only if mechanisms ensuring the implementation of all decisions is created." Presidents of Ukraine, Moldova, Georgia, Armenia, Kazakhstan, Kyrgyzstan, and

Today's News Highlights


IMF Refuses To Release Funds

PLM Opens Canning Plant

European Republics

Privatization Rules Reviewed

Lith. Transportation Min. Resigns

South Caucasus & Central Asia

Azeri-Turkey Pipeline Talks

CPC Ends Design Phase

Upgrading For The Silk Route

Tajik Joins The Customs Union




November 25, 1998

Intercon's Daily

Tajikistan have expressed cautious support for the plan, while Azerbaijan and Turkmenistan are more skeptical. The meeting is expected to sign conventions on inter-governmental scientific and technological cooperation, anti-crime programs and contacts of border troops. The Prime Ministers will also agree on a new date in December for a summit of CIS Council of Heads of State.


Ruble = 17.45/$1.00 (NY rate)

Ruble =17.47/$1.00 (CB rate)

Budget Debate Postponed Until Dec. 20th

· First Deputy Prime Minister Yuri MASLYUKOV Tuesday said that the 1999 draft budget may not be presented to the Russian State Duma until December 7th, pushing back its deadline of December 1st. Earlier this month, the Duma Budget Committee Chairman Alexander ZHUKOV gave the government a deadline of December 1st, to which the government appeared to be willing to meet. Duma Deputy Alexander SHOKHIN said that the Duma will not debate the budget until December 20th. Russian Prime Minister Yevgeny PRIMAKOV said that the 1999 budget is extremely strained, and the situation has formed in the country which requires emergency measures. He said, "The market cannot resolve anything." PRIMAKOV believes transition to the market economy should proceed in the earlier-planned route. He supports advancement of democratic reforms and a multi-structured economy.

New Terms For GKO Negotiations?

· Western banks and the Russian government are close to resolving the need to restructure the T-Bill and bonds (GKOs and OFZ) market, but it appears that the terms of the agreement may be changing. Under the original agreement foreign investors would receive ruble-denominated securities for their GKOs. Russia had offered investors a 10 percent cash payment up-front, 20 percent of the value of the debt in zero-coupon bonds, and 70 percent in four to five-year bonds, which would carry a coupon of 30 percent. The new proposal says that the coupon on the four to five-year bonds would fall five percentage points a year until it reaches 10 percent, the Financial Times reported. The 20 percent zero coupon bonds could be only used to pay taxes or buy newly issued shares in Russian banks. Russian Finance Minister

Mikhail ZADORNOV said that new state securities for the restructuring of GKO-OFZ treasury bills to be reimbursed by December 31, 1999 will be issued in the first ten days of December.

IMF Mission Ends Visit Without Releasing Funds

· The International Monetary Fund (IMF) Mission ended its one-week visit to Moscow on Tuesday without promising any release of funds from the $22.6 billion aid package. Russia has been trying to persuade the IMF to release the next installment of $4.3 billion that has been frozen since September. The IMF is insisting that Russia present a realistic budget and action on economic reforms. Deputy Finance Minister Oleg VYUGIN revealed that the IMF is demanding a primary budget surplus of 4 percent rather than the 2 percent surplus planned in the 1999 budget version that is likely to be adopted by the Cabinet. First Deputy Prime Minister Yuri MASLYUKOV said that the IMF mission, "is not happy with the way we plan to change our tax system." He added that, "future talks are not very promising." IMF representative Martin GILMAN said that the IMF wants to see a program which will inspire confidence in the government's ability to tackle social and economic problems. He said, "If they [Russia] don't bite the bullet now, the situation next year or the year after that will be even more difficult."

Government Considers Export/Import Dues

· First Vice-Premier Yuri MASLYUKOV said that the Russian government will consider a possible introduction of oil and gas export dues and sugar import dues on Thursday or Friday. The governmental commission for protective measures in the foreign trade and the customs tariff policy had a meeting on Tuesday to discuss the issue, but no decision was taken, he said. MASLYUKOV does not exclude that the government will abstain from introducing the oil and gas export dues, but stresses that is his personal opinion. "We are not going to impose tariffs because they are not profitable." Keeping in mind the importance of those exports for Russia, he hopes that other Cabinet members will agree with the opinion.


PLM Opens Can Plant Russia

· PLM of Sweden opened a $125 million canning plant 70 kilometers south-west of Moscow last week. The new plant is capable of processing 1.75 billion

When you need to know it as it happens




November 25, 1998

Intercon's Daily

cans per year and will replace imports from the company's Swedish and Austrian plants. Before the crisis in August, Russia was one of the world's fastest growing market for canned drinks. President and chief executive officer of PLM Frederick ARP said that the decision to build the plant was made last July when can exports to Russia reached the level of 700 million. He said, "But that was before the crisis. Now we are projecting a through put of about 500 million cans a year and expect the Russian can market next year to be 50 percent lower than in 1997. We will make a considerable loss next year and maybe it will take another year before we break even."

South Caucasus & Central Asia

Azeri-Turkey To Hold More Pipeline Talks

· Speaking at the National Press Club in Washington last week, Vice President of Azerbaijan's state oil company Socar Ilham ALIYEV said that the estimated cost of building the Baku-Ceyhan export pipeline for Caspian oil could be reduced if Turkey cuts transit fees and contributes to the cost of the construction. Socar has not committed the company to this route because of its high price tag of $4 billion. The Turkish government puts that figure at only $2.2 billion to $2.5 billion. ALIYEV has turned up the pressure on Turkey to come up with the necessary financing. He said that in order to make international oil companies favor the Baku-Ceyhan route instead of cheaper alternatives, the Turkish government must be prepared to provide any financing for the pipeline that firms request. In addition to financing, ALIYEV suggests that Turkey should offer several oil terminals and construction facilities already in place to make the pipeline route more attractive. Despite financing issues, many international oil companies believe there is not enough crude volumes to justify the expense of the route. Western oilmen point out that the added cost of extending the pipeline beyond Supsa, Georgia will be borne by the Azeri government. The final decision on whether the Baku-Ceyhan pipeline will be the main export route could be made as early as December 4th, when a joint Azeri government and Azerbaijan International Operating Company (AIOC) meet. But, Turkey has yet to provide AIOC with details of its tariff schedule and other financial incentives. Talks between Turkey and Azerbaijan on the construction of the Baku-Ceyhan route will continue next week in Istanbul, following the conclusion of second round talks in Baku on Monday. Turkey's undersecretary of energy Yurdakul YIGITGUDEN said, "We're happy with the progression...The target is to start the final bargaining after the draft agreements are signed."

Caspian Pipeline Consortium Given Go Ahead

· Russia, Kazakhstan, the Persian Gulf country of Oman and the Caspian Pipeline Consortium (CPC) on Tuesday marked the end of the designing phase of a large pipeline to carry Caspian oil to world markets. The parties signed an agreement allowing construction to begin. The pipeline will connect the

European Republics

Ukrainian Cabinet Reviews Privatization Rules

· Ukraine's Cabinet is finalizing a resolution on new energy privatization rules, under which the state would sell energy stakes to raise needed budget revenues. The stakes will be sold to the private investor offering the best business plan for modernizing its energy companies. The Ukrainian State Property Fund has offered stakes in 18 of Ukraine's 27 energy supplies this year, but so far has manage to only sell 9 of them. All the companies offered hold a monopoly or near monopoly position for electricity supplies to their regions. The Energy Ministry said that 10 foreign energy companies, including Electricite de France, Germany's RWE, and Britain's British Energy, have expressed interest in buying Ukrainian energy companies.

Lith. Transportation Minister Resigns

· Lithuanian Transportation Minister Algis ZVALIAUSKAS resigned on Tuesday because he was found to have mixed public and private interests RFE/RL Newsline reported. The Ethics Commission found that during his trip in October to Sweden, ZVALIAUSKAS had no official meetings schedules for the second day and decided to go hunting. The Commission ruled that this cannot be considered a part of an official business trip. After the scandal broke, ZVALIAUSKAS paid for the trip. According to BNS, the conservative dominated government may have to resign since nine of the original 17 Cabinet members have been replaced. According to Lithuanian Law, if more than half of the government resigns during a single term in office, it must receive parliamentary approval to stay in power.

When you need to know it as it happens




November 25, 1998

Intercon's Daily

huge Tengiz oil field with Novorossiisk on Russia's Black Sea coast, a distance of 1,500 kilometers. It will have an initial capacity of 560,000 barrels per day (28 million tons) by the end of 1999, and increase to 1.34 million barrels per day (67 million tons) by 2010. The first shipment of oil is scheduled for June 30, 2001. First Deputy Prime Minister Yuri MASLYUKOV hailed the project as, "a model for other large-scaled projects of the 21st century. Prime Minister Yevgeny PRIMAKOV said, "The CPC pipeline will become an important factor in ensuring stability in the Caspian region." It will also beckon foreign investors to return to Russia's floundering financial markets.

Chevron Overseas Petroleum Inc. President Richard MATZKE at the signing ceremony said that, "The pipeline will be funded by the equity funds from the producing companies. Some of the companies may choose to borrow money, but there won't be project financing." Building the pipeline will cost some $2.3 billion. More than $854 million is to be spent in 1999. It is estimated that Russia will earn $23 billion in tax revenues from the project and Kazakhstan $8.6 billion, The New York Times reported. Under the agreement, the CPC will oversee the project. Russia has a 24 percent share in the consortium, Kazakhstan 19 percent, and Oman 7 percent. The remaining shares are held by Chevron 15 percent, LUKoil and Arco 12.5 percent, Royal/Dutch Shell and Rosneft 7.5 percent, Mobil 7.5 percent. Agip 2 percent, Italy's ENI 2 percent, BG 2 percent and Oryx Energy company of Dallas 1.75 percent.

Four Nations Sign Silk Route Transit Agreement

· Kazakhstan, Kyrgyzstan, Pakistan, and China on Tuesday signed an agreement on "traffic in transit" aimed at promoting existing trade relations and enhancing trade along the Silk Route from Almaty to Karachi, Pakistan. Pakistan's Communication Minister Raja Nadir PERVAIZ said that trade routes between the four countries will be upgraded and facilities like petrol pumps and workshops will be made available along the roadside. It takes about ten

days to cover the distance between Almaty and Karachi, which is about 3,000 kilometers.

Customs Union Of Four Welcomes Tajikistan

· The Customs Union of Four, Russia, Belarus, Kazakhstan, and Kyrgyzstan, welcomed and legalized its newest member, Tajikistan. The decision to join the Union was made by the five presidents on April 28th. Tajik Prime Minister Yakhya AZIMOV informed the participants of the meeting that the parliament of his republic had ratified the Treaty on the Promotion of Integration in the Economic and Humanitarian Spheres of March 29, 1996, thereby completing the legal procedure of the Tajik Republic's accession to the Union. The Council approved the draft treaty on a customs union and a single economic space, as well as documents to implement this important agreement, which lays down the integrational strategy for the next few years. Russian Prime Minister Yevgeny PRIMAKOV stressed that, "restoration of common economic zone is a way for economic regeneration of the countries of the Commonwealth of Independent States (CIS). He added that the Union of Five should serve as a model for the integration to all the 12 CIS states. The Union aims at coordinating economic reforms and the deepening of intergovernmental economic integration.

Unemployment In Tajikistan Rises

· Tajikistan's State Statistics Agency on Monday reported that as of October 1st, the official unemployment figure stood at 64,800 people. This figure represents an increase in unemployment of 18 percent compared to the same period in 1997. The level of unemployment is 3.4 percent of the economically active population. In the first nine months of this year, employment services sent 4,500 people to different educational establishment for professional training.

The Daily Report on Russia and FSU

will not be published on

November 26th and 27th

in observance of the Thanksgiving Holiday

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

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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