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

Wednesday, December 23, 1998

Russian Federation

Politics

Rus-Kazakhstan Sign Agreements

· Two weeks ahead of presidential elections in Kazakhstan, Russian Prime Minister Yevgeny PRIMAKOV visited Astana on his return trip from India. PRIMAKOV and Kazakh counterpart Nurlan BALGIMBAYEV today signed a number of agreements between their governments for cooperation in the field of information, border checkpoints, free trade, the fuel and energy sector, and joint educational institutions. Part of the agreement lifts trade restrictions. PRIMAKOV said he was pleased with the talks held in Astana and noted that Russia and Kazakhstan have no differing opinions on world problems. He also met with Kazakh President Nursultan NAZARBAYEV. PRIMAKOV stressed, "it is important for Russia and Kazakhstan to unite primarily in the economic domain in order to jointly overcome the crisis."

PRIMAKOV would not comment on "the balance of political forces within Kazakhstan," but noted that he has a personal preference. NAZARBAYEV expressed satisfaction with the fact that the present Russian government is headed by PRIMAKOV, whom he personally has known for about two decades. A key item of the NAZARBAYEV's campaign is the support to rapprochement with Russia, "in the economic, humanitarian and cultural spheres," Chairman of the Kazakhstan Democratic Party Zhanai OMAROV remarked on Sunday. First Deputy Prime Minister Vadim GUSTOV, Trade Minister Georgy GABUNIA, Justice Minister Pavel KRASHENINNIKOV, and chiefs of the administrations of Astrakhan, Saratov, Omsk, and Orenburg regions discussed inter-regional cooperation problems with Kazakh Foreign Minister Kasymzhomart TOKAYEV and other Kazakh representatives. According to a signed joint statement,

"Some pressing problems, linked with the implementation of the Treaty and Program of economic cooperation between the two countries in the period from 1998 to 2007 were thoroughly discussed. The sides stressed, in particular, the importance of promoting Rus-Kazakh partnership in the petroleum and gas sector, including the transportation of the hydrocarbonic resources of the Caspian zone to the world markets. Agreement was reached to ensure effective state control over the implementation of the Caspian pipeline consortium project, and also to additionally consider the possibility of reconstructing the Atyrau-Samara oil pipeline." PRIMAKOV ended the visit by inviting BALGIMBAYEV to Russia. He accepted, but the exact date has not been specified.

Rus To Receive Chemical Disarmament Aid

· Dutch Foreign Minister Jozias VAN AARTSEN and Russian envoy to the Organization for the Prohibition of Chemical Weapons (OPCW), ambassador to the Netherlands Alexander KHODAKOV Tuesday signed an agreement, whereby the Netherlands will help Russia to destroy chemical armaments stockpiled in the suburbs of Kambarka, Udmurtia. About 6,500 tons of the lewisite toxin has been stored near the town since the 1950s. The toxin is liable for destruction under the Convention on the Prohibition of the Development, Production and Stockpiling of all Types of Chemical Weapons and on their Destruction, which entered into force in 1997. The Netherlands will help Russia, free of charge, by supplying materials and other resources for the timely, safe, and ecologically

Today's News Highlights

Russia

WB Grant Highway Loan

LUKoil-IOC Sign Oil Deal

European Republics

Ukraine To Print Gryvnias

South Caucasus & Central Asia

Caucasus Transport Mins.Meet

Entire Kyrgyz Gov't Resigns

CIS Defense Mins In Moscow

TDA Receives Consulting Grant

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Wednesday

December 23, 1998

Intercon's Daily

grounded destruction of the lewisite. The overall amount of the material and technical assistance, to be rendered in four projects, is planned at 25 million Dutch guilders (about $12.5 million). The Netherlands will also help Russia to organize the second conference of countries wishing to help it destroy chemical weapons.

Gov't To Pay Wage And Pensions Arrears

· Finance Minister Mikhail ZADORNOV announced at a meeting of the Federation Council today that the Russian government plans to repay salary and pension arrears before December 31st. He said that the funds received from the sale of a 2.5 percent stake in Russia's gas monopoly Gazprom will be distributed to the regions this month. Nizhny Novgorod region will receive 26 million rubles, Orenburg region 18 million rubles, Perm region 46 million rubles. The Tomsk governor Viktor KRESS urged the cabinet jointly with regional authorities to ensure the payment if only of one month's wages "from whatever sources." He stated that the 13 billion rubles received for the sale of part of Gazprom shares could serve as one of the sources for paying wage arrears. Outside the entrance to the Federation Council, doctors and teachers picketed demanding wages.

Economy

Ruble = 20.90/$1.00 (NY rate)

Ruble = 20.51/$1.00 (CB rate)

Russia To Pay On Eurobond Issue

· The Russian Finance Ministry is prepared to meet a $159.37 million coupon payment due Thursday on a 30-year Eurobond issued in June. Deputy Finance Minister Mikhail KASYANOV said that Russia will continue to make its payments on Eurobonds and confirmed that the government was already transferring the money needed to make the payment. Russia has not missed any Eurobond payments, but it has either defaulted or fallen behind on payments for its treasury and Soviet-era debt.

WB Grants Highway Loan To Russia

· The World Bank on Tuesday decided to give Russia a loan for the second project of repairs and maintenance of motor roads. The loan, worth $400 million, will be used in Siberia and the Far East, including the Krasnoyarsk and Khabarovsk territories. World Bank Vice President for Central and

Eastern Europe Johannes LYNN said the loan will improve Russia's road construction. The bank believes that improving Russia's roads will increase the demand for transportation services. Part of the loan will be used to develop the private road building industry and consulting. It will improve the distribution of money from local budgets on road construction works through a better selection of projects. The money will also implement a system of toll roads, where revenues will be pumped into the federal budget. The loan will be at the standard interest rate for LIBOR-based single currency loans in dollars, repayable in 17 years, including a five-year grace period. The World Bank's commitments to Russia total $11.8 billion for 42 projects.

Business

LUKoil-Indian Oil Corp. Sign $1.5 Billion Deal

· President of Russia's largest oil producer LUKoil, Vagit ALEKPEROV and Indian Oil Corp (IOC) President Mohamad Asad PATHAN on Tuesday in New Delhi signed a 10-year agreement to supply up to 10 million metric tons of crude oil a year to India, beginning in 1999. The deal is said to be valued at $1 billion to $1.5 billion. LUKoil will supply India with as much as 2.5 million tons of diesel fuel, up to 1 million tons of kerosene, and up to 1 million tons of high-sulfur fuel oil annually. ALEKPEROV said, "Russia and India have had stable, mutually advantageous economic relations for many decades and we are pleased that our company has entered into its investments and development. We are confident that the agreement between these two large oil companies will fulfill the interests of our shareholders and be useful to both companies." Moscow investment bank MFK Renaissance in a brokerage report said that, "LUKoil's development of closer ties with Russia's long-standing trade partner, India, represents a key initiative to help LUKoil seek out alternative means for financing its ambitious capital spending projects in the Caspian region and in Timan Pechora," while it provides IOC with a strategic opportunity to acquire new reserves and favorable terms in Russia. LUKoil exported more than 2 million metric tons of oil in November, a rise from 1.65 million tons in September. It exported a total of 10.89 million tons in the period of January to November.

Tax Police Forced To Explain Their Actions

· Recent outcries against the Russian Federal

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Tax Police (FTP) for its investigation and "repressive acts" on advertising tycoon Sergei LISOVSKY and chiefs of two spin-offs of his business empire, Vladimir ZHECHKOV and Vladimir GRIGORYEV, has caused the FTP to explain its actions. The FTP has searched LISOVSKY's office at Premier SV Advertising, apartment and the country house looking for documentary evidence of his tax evasion as well as the homes of GRIGORYEV, head of Vagrius Publishing House, and ZHECHKOV, president of an advertising company in control of LISOVSKY. Premier SV Advertising agency was reported to be heavily in arrears to ORT television, which in turn exposed it to bailiff services. According to a FTP spokesman, the action of the tax police is often covered by the media in a distorted or tendentious way. The tax police said it was regrettable that apart from the media, some of politicians and art and culture figures seen as leaders of the public opinion got drawn into the campaign against tax police. "The accusations of the investigating apparatus of tax police of repressive acts, the search for analogies with the year 1937 is nothing but an unveiled pressure on the investigation, an attempt to set the public opinion against legal acts of law and order authorities," FTP said in the statement. It said that the tax police will continue its investigations, "in strict accordance with law." On Friday, tax evasion charges were filed against LISOVSKY and ZHECHKOV which could have legal punishment ranging from a fine to five years in prison. They had underpaid their taxes by approximately 1.1 million rubles. GRIGORYEV was also interrogated, as a suspect to the crime, and taken recognizance not to leave Moscow.

tion of the telecommunications monopoly to pay off wage and pension debts.

South Caucasus & Central Asia

Georgia, Armenia, Bulgaria Transportation Mins.

· Armenian Transport Minister Yervand ZAKHARYAN and Bulgarian and Georgian counterparts, Wilhelm KRAUS, and Merab ADEISHVILI, today met in Yerevan and agreed to carry on active cooperation in the field of Transportation. The three Transport Ministers signed a memorandum of cooperation in the transportation sphere. All agreed on working to establish an Armenia-Georgia-Bulgaria transportation corridor and ensure high level of service. It was noted that a ferry service between Georgia's port of Poti and Bulgaria's Varna began operation in 1997. The Ferry service helps integrate the region into the European transport system. ZAKHARYAN pointed out that a multi-modal agreement with Bulgaria is expected to be signed when Armenian President Robert KONCHARYAN visits Bulgaria in 1999. This document will include transportation by sea, road, and rail. KRAUS and ADEISHVILI were received by Armenian Foreign Minister Vartan OSKAYAN, who welcomed their cooperation in transportation as a source of peace and stability in the Caucasus.

Entire Kyrgyz Gov't Resigns On Criticisms

· The government of Kyrgyzstan resigned today after being criticized by President Askar AKAYEV and the National Security Council, for not coordinating the government's policy with the National Bank to stave off the economic fallout from Russia's crisis. After hearing economic reports by Prime Minister Kubanychbek ZHUMALIYEV and National Bank Chairman Marat SULTANOV, the Council said the government's work was unsatisfactory. AKAYEV said, "It is impossible to work with such a Cabinet." He believes that Kyrgyzstan will be better served by a, "new, more capable government," in 1999. Presidential spokesman Kanybek IMANALIYEV said, "the government of Kyrgyzstan has failed to reach a clear understanding of its tasks in the struggle against the economic crisis." Prime minister Kubanychbek ZHUMALIYEV and all government ministers resigned and AKAYEV is expected to issue a formal decree dismissing the government. AKAYEV appointed Boris SILAYEV, who was deputy prime minister, as acting

European Republics

Ukraine To Print Money To Cover Wage Debt

· Ukrainian Prime Minister Valery PUSTOVOITENKO Tuesday said that the Cabinet has approved plans for a monetary emission of 1 billion gryvnias to cover mounting wage and pension debts. He did not say how the emission will affect 1999's inflation rate which has been targeted for 19 percent. The government owes more than 2 billion gryvnias to pensioners and approximately 1 billion gryvnias in unpaid wages to state employees. In addition, Ukraine has to pay off $2 billion on its foreign debt obligations in 1999. The Cabinet also said it would use proceeds from upcoming privatiza

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prime minister replacing ZHUMALIYEV. SILAYEV said, "The previous government has not committed grave errors." He noted that it was slow to implement economic reforms and react to Russia's economic fall in August. "We should stop blaming everything on Russia. Kyrgyzstan is still suffering from its own unsettled problems." According to government figures, the economy has grown 1.7 percent this year, making Kyrgyz one of the few former Soviet republics that doesn't have a contracting economy. However, the country suffers from high inflation, a weakening currency, and a trade deficit.

According to a Central Asian Institute report, Kyrgyzstan and other former Soviet republics were unprepared for independence from the Soviet Union in 1991. Before the break-up Kyrgyz was one of the republics which had the highest proportion of families living below the Soviet poverty line. Kyrgyzstan suffered from a loss of transfers from the Soviet Union, disruption of inter-republic demand and supply links, and economic disorientation. Kyrgyzstan worked quickly to overcome these measures implementing some radical reforms. Kyrgyzstan along with Kazakhstan have establish a some what market based economy. However, to make further reforms, Kyrgyzstan must overcome its lack of resources and its geographic isolation.

CIS Defense Ministers Meet IN Moscow

· The Commonwealth of Independent States (CIS) Defense Minister's Council opened Monday in Moscow at the Headquarters for the coordination of military cooperation and was presided over by Russian Defense Minister Igor SERGEYEV. Also in attendance were leaders of the CIS Executive Secretariat, the Secretariat of the Collective Security Council (CSC), the CIS Council of Commanders of Border Troops, Heads of Ministries and Departments of Russia. The council will consider further developing the integration process of the CIS in the military sphere, ensuring information security of CIS countries, and agreeing on a sanitarium resort for treatment and holidays for servicemen and their

families. SERGEYEV said, "the system for controlling the integration processes should be perfected and corrections are needed in the structure and principles of the work of the charter-envisaged and sector structures of the Commonwealth in order to turn the CIS into an authoritative and truly regional organization." Defense Ministers voiced concern over the 34 billion ruble debt to the Council for 1994-1998. Information, received from the participants of the meeting, shows that Armenia and Azerbaijan are the main debtors. These two countries have not paid a single ruble in 1996 and 1997 to ensure the work of Defense Ministers Council. Russia has made all contributions except for this year when it paid only 6.4 billion rubles instead of 12.23 billion rubles.

TDA Receives Grant For Consulting On TCGT

· Turkmenistan and the American Trade and Development Agency (TDA) on Thursday signed a provision granting $595,000 for consulting services on the Trans-Caspian gas trunkline (TCGT). This is a significant step forward in the preparation of the Turkmenistan-Turkey- Europe gas pipeline project. This is the TDA's second grant, provided for the Trans-Caspian project. The first $750,000 was allocated in April, 1998 during the Turkmenistan President's official visit to Washington. It was used by the American Aeron Company to prepare a tentative technical and economic estimation (TEE) of the project. It is planned that a final TEE report is to be presented by the company on January 15th. Iosif MAIMAN, Turkmen President Saparmurat NIYAZOV's special adviser on TCGT project said that a document on the establishment of the consortium will be signed on February 19th. Two other basic Turkmen-Turkish agreements on the gas pipeline and on the sale and purchase of natural gas are expected to be signed by the end of May, 1999.

The Daily Report on Russia

and the Former Soviet Republics

will not be published Dec. 25th to Jan. 1, 1999

for Intercon's annual Winter break.

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

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