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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, November 6, 1998

Russian Federation


Stepashin Attends CE Interior Min. Conference

· Russian Interior Minister Sergei STEPASHIN is attending the first conference of Interior ministries of countries member-states of the Council of Europe which opened in Strasbourg on Thursday. The conference is devoted to problems of fighting crime, corruption and illegal capital turnover. The conference is being held on the initiative of the Council of Europe and the government of the Russian Federation. The conference is being attended by Interior Ministers from over 20 countries. At a summit of member-states of the Council of Europe held in Strasbourg on October 10-11, 1997 heads of state and government expressed concern over growing rates of organized crime, which above all, affected states of Central and Eastern Europe, Russia and republics of the former Soviet Union. On Wednesday, the Committee of Ministers of the Council of Europe approved a convention on the struggle against corruption which is to become another instrument in the struggle against crime in Europe

Deputy Chairman Unexim Arrested

· Deputy chairman of the Uneximbank Grigori KOSHEL was detained at Moscow's Sheremetyevo-2 airport. According to the chief administration on economic crime control of the Russian Interior Ministry's spokesman, KOSHEL, "was detained at the gangway of a plane after he passed the customs house." Nothing is said about other particulars of the detention. The Interior Ministry reported that KOSHEL was arrested in connection with a criminal case on the Azot Company, situated in the city of Cherepovets.


Japan Grants $800 Million Credit To Russia

· Japanese Prime Minister Keizo OBUCHI told

Russian Prime Minister Yevgeny PRIMAKOV by telephone today that the Japanese government has decided to grant a $800 million credit to Russia, as part of the $1.5 billion credit, allocated to Russia by the Export-Import Bank of Japan earlier this year. According to the government spokesman, PRIMAKOV and OBUCHI discussed preparations for the Russian-Japanese summit talks scheduled for next week in Moscow. Both sides regard the forthcoming visit as an important landmark in the development of bilateral relations. The prime ministers pointed to the importance of the planned signing during the visit of the Moscow Declaration, which is going to be a new political document, as well as of other Russian-Japanese documents. They discussed some specific problems of bilateral economic cooperation within the framework of the implementation of the YELTSIN-HASHIMOTO Plan.

Russia To Create Development Bank

· Russian Economics Minister Andrei SHAPOVALYANTS in Germany announced today that the Russian government is going to create the Russian Development Bank for resolving problems, connected with the fulfillment of the anti-crisis program. While noting that the banking system is disintegrating, SHAPOVALYANTS said, "The taking of priority measures, aimed at overcoming the crisis, will make it possible to reanimate the banking system, to restore its payment functions and to ensure the rendering of reliable services to clients. One can hardly hope, however, that the new

Today's News Highlights


Ruble Emission Coordinated

Rus-Vietnam Oil Refinery

LUKoil Exports Rise

European Republics

Ukraine-Lith. Seek To Join EU

South Caucasus & Central Asia

Georgia To Recevie Patrol Ship

The Ankara Declaration

Kazakh Candidate Barred

Tajik Clashes Continue




November 6, 1998

Intercon's Daily

banking system will quickly turn into a source of major investments. The Russian Development Bank should be created for that purpose." He added that, "we should carry out the restructuring of the Russian production sector, including by attracting foreign credits and investors. All over the world both insurance and political risks are insured with the help of the state. In the current situation, we cannot do without a powerful state agency with sufficient assets, including abroad."

Ruble Issues, Cash Tax Returns Decrease

· Russian Finance Minister Mikhail ZADORNOV said on Thursday that at least 5 billion rubles have been issued in the fourth quarter so far. The Ministry plans to issue up to 25 billion rubles by the end of the fourth quarter. In October, the government managed to pay off its liabilities concerning that month's wage and pensions. ZADORNOV added that 4 billion rubles were transferred to the Pension Fund. The government last month also allocated 7 billion rubles to repay delayed allowances to the Russian army.

Economics Minister Andrei SHAPOVALYANTS, in Germany said Russia will be coordinating the volume of the forthcoming ruble emission with the International Monetary Fund (IMF). Emissions contradict IMF terms for the granting of another currency tranche to Russia. SHAPOVALYANTS noted that the emission for the fourth quarter of 1998 and for 1999, will be coordinated with the IMF. "There would be no need for a new emission if the IMF granted another tranche," SHAPOVALYANTS said. US Deputy Secretary of State Strobe TALBOTT warned Russian officials that a massive ruble emission would endanger future US support at international financial institutions.

ZADORNOV noted that the major task facing the government is to increase budgetary revenues. He noted that tax collection in cash has decreased. At a government meeting on Thursday, he said that there has been a, "dangerous tendency of falling volumes of tax payments in `live money'." Taxes paid in cash reached 65 percent of total returns in 1997, he said. This figure decreased to 62 percent in the first half of 1998 and to 50 percent in the third quarter. Fourth-quarter cash payments are expected to total 47 percent of tax returns.

Ruble = 15.24/$1.00 (NY rate)

Ruble = 15.01/$1.00 (CB rate)

Jun Jul Aug Sep Oct Nov


Russia To Build Oil Refinery In Vietnam

· A Russian delegation led by Deputy General Director of the Zarubezhneft Association Alexei RYABOV has arrived in Hanoi, Vietnam for a final confirmation of the details of a Rus-Vietnamese project to build an oil processing plant and make it operational. The sides are to discuss the last details before the realization of the project is started. Basic instruments of a joint venture to build a plant in the area of Dungquat Gulf in the Central Vietnamese province of Quanggai are to be signed in the coming days. An agreement on the establishment of the joint venture was concluded in May by the Director-General of the Russian Zarubezhneft Association Oleg POPOV and Head of the Petr-Vietnam state-run company Ngo Thuon SAN. The first section of the plant is to be operational in 2001. The cost of the implementation of the project is estimated at $1.3 billion. Russian experts believe that the plan to build the first Vietnamese oil refinery, which will be the most technologically efficient enterprise in Southeast Asia, is very profitable and the costs can be recouped within three to five years from the day the enterprise is commissioned. The oil refinery's capacity will be 6.5 million tons per year.

LUKoil Exports Rise From Jan.To Sept.

· In the period of January to September, 1998, the oil exports of the Russian company LUKoil have grown 40 percent to a level of 18.6 million metric tons. The increase in exports relates to a significant

When you need to know it as it happens




November 6, 1998

Intercon's Daily

reduction in oil deliveries to the state under intergovernmental accords, with these volumes left at LUKoil's disposal. Approximately 95 percent of oil exports have been to the West. LUKoil's oil output made from January to September 47.7 million metric tons, up two percent from this period in 1997. The output increased due to a more intensive extraction in Russia and abroad. LUKoil-Kumkol joint stock company, in which LUKoil owns a 50 percent stake, accounted for most of oil extraction outside Russia. The subsidiary, which develops Kumkol oil field in Kazakhstan, has increased the output 16 percent over the past nine months, to 668,000 metric tons. LUKoil's gas output has increased 16 percent in January to September owing to a higher utilization of the satellite oil gas and acquisition of a 15 percent stake in the project of development of Kazakhstan's Karachaganak gas condensate field.

LUKoil now owns the controlling block of shares of the Murmansk Shipping Line, which was transferred from Menatep Bank. The former head of Arctic seamen is being replaced by his deputy for the nuclear-powered fleet, Vyacheslav RUKSHA. Murmansk seamen hope that the shipping line will operate more efficiently in the Arctic seas. LUKoil, holding licenses for the development of numerous shelf deposits of oil in the region, is going to step up its presence.

manship. KUCHMA welcomed Lithuania's consent to take part in the Organization of Black Sea Economic Cooperation.

South Caucasus & Central Asia

Georgia To Receive German Patrol Ship

· A German patrol ship is expected to arrive in the port of Poti on November 15th. Chairman of the Georgian border protection department Lieutenant-General Valery CHKHEIDZE said that the German government will transfer the ship to the Georgian border guards free of charge. During CHKHEIDZE's visit to Germany early in October, German relevant structures expressed preparedness to help Georgia train personnel and offer special equipment for Georgian check points, as well as devices to check the authenticity of documents.

Main Caspian Pipeline Decision Postponed

· Last week in Turkey, Presidents of Azerbaijan, Turkey, Georgia, Uzbekistan, and Kazakhstan signed

the Ankara Declaration which endorses the transportation of Caspian oil to the Western markets through the Baku-Ceyhan route. US Secretary of Energy Bill RICHARDSON witnessed the signing. The Western oil companies, which are members of the Azerbaijan International Operating Company (AIOC) met in London on Thursday and decided to delay yet again a decision on the main export pipeline for Azerbaijan's Caspian oil until December. Amoco Eurasia chairman Charles PITMAN said Azerbaijan State Oil Company (Socar) agreed to the delay in order to give the AIOC more time to make its decision. The same day representatives of Socar, AIOC, the Georgian government met with the Turkish Energy Ministry in Istanbul focusing on financial incentives for companies joining the consortium that will finance and build the planned Baku-Ceyhan export pipeline.

US Ambassador Richard MORNINGSTAR addressed the Washington Carnegie Foundation for promoting universal peace on Monday on the US policy toward the Caspian Basin. He said that the US' key objectives are: "strengthening the sovereignty, independence and prosperity of the Caspian NIS; enhancing commercial opportunities for US and other companies; bolstering the energy security of the US and our allies and ensuring the free flow of energy from the Caspian region to the world market

European Republics

Ukraine, Lithuania Aims For EU Membership

· Ukrainian President Leonid KUCHMA and Lithuanian President Valdas ADAMKUS today signed a joint statement declaring their commitment to becoming new members of the European Union. After the signing in Kiev, KUCHMA said, "Ukraine's strategic goal is integration into European structures. We have been steadfastly going this way." He believes that Poland, one of the countries in the triangle "Kiev-Warsaw-Vilnius" is the first to join the European Union and hopes that Poland will promote the admission of Lithuania and Ukraine into the European Union. The Ukrainian president does not rule out the possibility that Lithuanian servicemen may join the Ukrainian-Polish peace- keeping battalion. The two Presidents also discussed Ukraine's desire to receive observer status to the Council of the Baltic States, where Lithuania holds rotating chair

When you need to know it as it happens




place; and mitigation regional conflicts by building economic linkages between the new states of the region." To reach these objectives the US supports an east-west transit corridor comprising of a network of multiple pipelines that will bring Caspian oil to western markets. He stated that the US role in this process is, "that of a facilitator. Our job is to encourage the relevant companies and countries of the region to negotiate in good faith on the commercial and political factors that must be satisfied in order to make any of these pipelines viable." US Secretary of State for the Newly Independent States Stephen SESTANOVICH in Georgia this week echoed MORNINGSTAR's sentiments. In a press conference SESTANOVICH said, "The United States has supported the creation of a network of multiple pipelines in this region for the transportation of Caspian energy to world markets. We felt that one of those pipelines should be from Baku to Ceyhan. We also felt that a pipeline along this route has to be commercially viable and has to reflect cooperation among governments of the region." MORNINGSTAR noted that the US will not directly finance the Baku-Ceyhan route. He reiterated , "the effort by the US government's three finance and investment agencies, the Trade and Development Agency (TDA), the Overseas Private Investment Corporation (OPIC), and the EXIM Bank" to promote investment in energy projects in the Caspian region.

The Ankara Declaration follows verbatim:


The President of the Republic of Azerbaijan Haydar ALIYEV, President of Georgia Eduard SHEVARDNADZE, President of the Republic of Kazakhstan Nursultan NAZARBAYEV, President of the Republic of Turkey Suleyman DEMIREL, President of the Republic of Uzbekistan Islam KERIMOV, evaluating the issues of exploration and production of oil and natural gas resources in their countries, and secure transportation of these resources to the world markets through multiple pipelines and considering the urgency of decision making have signed this declaration.

1) The Presidents for the consolidation of the independence and security of the Caspian

region countries and the neighboring countries have considered the significance of exploiting the hydro-carbon resources in these countries. They have also confirmed the necessity to transport the oil and natural gas resources through economically and commercially feasible multiple pipelines to support their efforts for economic development, and to improve the welfare of their peoples. The Presidents furthermore reiterated their commitment to the principles of the European Energy Charter, stipulating free, stable, environmentally-friendly and unimpeded transportation of hydro-carbons.

2) As far as the hydro-carbon producing countries are concerned, the Presidents have underlined that, realizing the East-West Corridor, including CPC, the trans-Caspian and trans-Caucasus oil and gas pipeline systems, which are commercially acceptable, just and non-discriminatory, is an extremely significant project in transporting to the world markets, the hydro-carbon resources produced in the Caspian Sea region and other related countries.

3) The Presidents, in the eve of a decision to be taken concerning the main Azerbaijani export pipeline have strongly confirmed the accomplishment of their determination in realizing the Caspian-Mediterranean (Baku-Tblisi-Ceyhan) Project as the main export pipeline project.

4) They also stressed the importance of this line to be open equally to the producers and transporters located on both sides of the Caspian Sea, as well as the throughput to be assured for that line. Aiming at this goal, the Presidents are inviting the companies participated in the exploitation of the hydro-carbon resources in the Caspian region and other interested companies as well as the international finance institutions to conduct negotiations with the related governments in a comprehensive and constructive manner offering favorable conditions and to support the attainment of the finance needed for the construction of the pipelines.

5) The Presidents in conformity with the international rules concerning the protection of the rights of foreign and local investors relating to the projects on the transportation of the energy resources to the world markets, have undertaken to




November 6, 1998

Intercon's Daily

instruct their related authorities regarding the creation, as soon as possible, of all the necessary conditions for the realization of the East-West energy corridor, and within this framework Baku-Tblisi-Ceyhan pipeline. They have also agreed to take the necessary measures to create favorable conditions for the investors.

6) The Presidents have pointed out once again the importance of the maintenance of the efforts for the protection of the coasts of the Black Sea, the Mediterranean, and the Turkish Straits. The Presidents, therefore, have stressed, that the transportation of the oil and natural gas resources to the world markets through pipelines is indispensable to avoid the dangers and threats with regard to the potential increase of the tanker traffic, particularly in the Turkish Straits.

[Presidential signatures]

For the Republic of Azerbaijan, For Georgia, For the Republic of Kazakhstan, For the Republic of Turkey, For the Republic of Uzbekistan. Witnessed by Bill RICHARDSON, US Secretary of Energy

Kazhegeldin Barred From Presidential Election

· The Central Electoral Commission chairwoman Zagipa BALIYEVA announced on Thursday that Akezhan KAZHEGELDIN is not eligible to run in the presidential elections scheduled for January 10th. KAZHEGELDIN, the former prime minister and the main opponent to the President, is barred because of a 6,600 tenge fine ($800) he received for participating in an unsanctioned meeting of a newly formed opposition group, the Movement for Fair Elections, in October. According to BALIYEVA under the terms of a presidential decree, people who have been penalized for criminal offenses within the past 12 months cannot run for president. If the high court overturns the rule before the end of the month, KAZHEGELDIN would be able to register as a candidate. Other registered contenders are Serikbolsyn ABDILDIN and President Nursultan NAZARBAYEV. Today, Kazakhstan's parliament is

planning a joint session vote to change NAZARBAYEV's decree on elections. Deputies will debate the provision on the number of supporting signatures required for registration of a candidate in presidential elections. Under current legislation, a presidential candidate must collect 160,000 signatures to be registered. The parliament urges for a lower quota.

Tajik Rebel Threaten Dam Blasts

· The Tajik government forces have retaken key positions in Khodzhand and have surrounded the Kayrakkum Dam following a threat by rebel leader Makhmud KHUDOBERDIYEV to blow it up. Explosion of the dam could flood huge stretches of Central Asia. A government spokesman said state troops have stormed the Chkalovsk military base, which was the temporary headquarters of KHUDOBERDIYEV's forces, and are pushing the rebels back from the area. Meanwhile, the rebels exploded the biggest bridge on a strategically important highway connecting Dushanbe with northern areas of Tajikistan on Thursday evening. The explosives were seized by the rebels at a mining enterprise in the settlement of Aini. The rebels have still been keeping a mountain pass area on the Shakhristan highway under their control. Fighting continues in the area of the highway 150 kilometers off Dushanbe. Armed groups of the United Tajik Opposition (UTO) have joined the governmental troops in fighting the mutiny in the Leninabad region. The UTO troops under the command of Mirzo ZIYEYEV have taken an oath of allegiance under the military protocol of the peace agreement.

Tajik President Emomali RAKHMONOV said that the rebels attempted to use force to capture power by all means whatever casualties. According to RAKHMONOV, dozens of rebels were taken as prisoners and are disclosing the true aims of the rebels. The President declared that, "The peace process is taking momentum and no anti-government elements can stop it."

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

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When you need to know it as it happens