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

Tuesday, December 8, 1998


Russian Federation

Politics

Iran Recruits Rus. Scientists For Germ Warfare

· According to American officials and Russian scientists, Iran has been actively recruiting former Soviet scientists who once made bio-chemical weapons to work in Tehran. A New York Times article cites that Iranian officials have contacted dozens of scientists luring them with a salary of up to $5,000 a month, which is much more than most Russians make in one year. Scientists in Russian and Kazakhstan admit that at least five of their colleagues have gone to work in Iran, while others have accepted contract work, allowing them to continue living at home. Russian scientists described a recruiting pattern that starts with telephone calls and faxes with initial discussion of vague scientific projects and hints of large sums of money to invitations to visit Iran and blunt expressions of their needs. They said that Iran is specifically interested in biological weapons and germ warfare and inquires about dual-use materials and equipment and information on microbes and the genetic make-up of pesticides and humans. Counselor to Iran's mission to the UN Gholamhossein DEHGHANI said that many foreign scientists work in his country, but only on peaceful projects. He cited a 1972 international treaty ratified by Iran which bans germ warfare. DEHGHANI said, "We do not believe that having such weapons increases our security." Since Iran believes that Iraq used chemical and biological weapons against them in the Iran-Iraq war in the 1980s, Iran has some powerful reasons why it would want to build its own arsenal. To counter Iran and other rogue nation's recruiting plans, the US has begun an effort to be the largest competitor for the allegiance of former Soviet germ scientists. Washington plans to launch a scientist-to-scientist exchange, joint research projects and programs to convert institutes once associated with the Soviet

germ programs to civilian use laboratories. Senator Richard LUGAR of Indiana said, "This is a high-stakes game to win the hearts and minds of Russia's best scientists who are dangerous simply because of what they know." The US did not fully understand how lethal and ambitious the germ warfare program was until several top germ scientists defected to the West. At the height of the program, the Soviet Union had more than 70,000 scientists working on preparing bombers and missiles with anthrax, plague, and small pox. According to The Biological & Chemical Warfare Threat, an unclassified report from the Central Intelligence Agency, "one advantage of biological weapons over chemical and nuclear weapons is that there are no reliable BW [biological warfare] detection devices currently available nor are there any recognizable signals to the human senses." Many sites throughout the Soviet Union specialized in developing biological and germ agents. These include: The State Research Center of Virology and Biotechnology (Vector) known for its germ bank for all strains of small pox; the State Research Center for Applied Microbiology developing lethal bacteria; and Stepnorgosk, Kazakhstan specializing in deadly anthrax. The research conducted at Obolensk was experimenting with self mutating and genetic biological warfare agents, making development of antidotes literally impossible. The concerns are that Iran is pursuing similar research.

Duma Delays START-II Ratification

· The Russian State Duma today postponed discussions on the START-II Treaty after failing to

Today's News Highlights

Russia

Slow and Careful Emissions?

Gazprom Stakes For Sale

Japan To Re-build Energy Plants

European Republics

Belarus Presidential Candidate?

Ukraine-Georgia On Cooperation

South Caucasus & Central Asia

Rus-Georgia Sign Protocol

Unocal Pulls Out Of Centgas

New Direct Dial Service

Politics-Economics-Business

Page


Tuesday

December 8, 1998

Intercon's Daily

submit related information on nuclear weapons to President Boris YELTSIN. The Duma Council was scheduled to review a bill outlining Russia's nuclear weapons program. Duma Security Committee chairman Viktor ILYUKHIN said that the ratification of START-II should be discussed at meetings of Duma factions and deputy groups. Yabloko leaders accused the Communists in the Duma of once again stalling the treaty, which the US Senate ratified in 1996. He also pointed out that the government must present funding information before the treaty can be ratified. In financial terms, Russia's enactment of START-II would be, "comparable with a volume of financial infusions that we probably have not got over the whole five years from international credit organizations," he said. The treaty would halve the Russian and American nuclear arsenals to about 3,000 to 3,500 warheads each. YELTSIN pointed out that the missiles that would be destroyed under START-II will soon be out of date.

Russia's Military Debt Forces Dangerous Plan

· Russian Colonel-General Anatoly SITNOV, head of armament for the armed forces, said that Russia's Defense Ministry will owe weapon makers more than $1.25 billion by January, 1999. He said that more than half of that amount is for weapons and maintenance. The Ministry will owe another $350 million for research and development and $150 million for repairs. SITNOV believes that the $4.5 billion in 1999 defense spending set aside in the preliminary government request will not cover the cost to properly train troops, purchase spare parts, and fuel or update equipment. He is calling for the government to increase the allotted funds to 3.5 percent of the gross domestic product. The Russian military has suffered severe budget cuts since the collapse of the Soviet Union, resulting in malfunctioning equipment, inadequate training and living conditions for troops, low morale, and an increase in crimes within the military. In fact, because of its lack of funds, the Russian military has been forced to design a cheap and risky plan to destroy old nuclear missiles. The plan calls for the launching of Scalpel missiles without nuclear warheads with a calculated trajectory that the missile would use up its fuel and burn in the atmosphere, according to the missile force press service. One complication is that the service-life of the missiles has expired and engineers are no longer sure whether the missiles will follow their programmed

path. The storage and protection of the missiles is dangerous and expensive for the military.

Meanwhile, Russian President Boris YELTSIN Monday signed a decree on Russia's military-technological cooperation with foreign countries. The document stipulates the formation of a commission under the president, responsible for military-technological cooperation with foreign states. Prime Minister Yevgeny PRIMAKOV was appointed chairman of the commission.

Economy

Ruble = 20.4/$1.00 (NY rate)

Ruble = 20.43/$1.00 (CB rate)

Foreign Trade Declines To Reach 1995 Levels

· Russian Trade Minister Georgy GABUNIA on Saturday said that over the first 11 months of 1998, Russia's foreign trade declined 17 percent from the same period in 1997. He said foreign trade turnover has fallen to the 1995 level. The imports decreased by 60 percent since August 17th when Russia's ruble was devalued and the country defaulted on its debts. GABUNIA cited the financial crisis in Southeast Asia and Russia, and Russia's banking system as the reasons for the decline. GABUNIA predicted that the situation might change for the better when Russia's financial and economic systems are stabilized. In order to strengthen its role in world markets, Russia must change its customs legislation, streamline import and export procedures and gradually open its market, while protecting its own manufacturers, he said. GABUNIA said anti-dumping measures against Russia leave it with an annual loss of $1 billion to $1.5 billion. Russia is facing a stop to its ferrous metal exports because of Western anti-dumping moves. He said the problem should be solved in negotiations, into which some of Western partners are unwilling to enter.

Slow And Careful Emissions?

· The Russian Central Bank chairman Viktor GERASHCHENKO said in an exclusive interview with the Newsweek magazine that the Russian government would have to implement an emission policy in order to curb the economic crisis. He said, "We have no other way out but turning on the printing press very slowly and very carefully." On Monday, Central Bank first deputy governor Tatyana

When you need to know it as it happens

Politics-Economics-Business

Page


Tuesday

December 8, 1998

Intercon's Daily

PARAMONOV told the Russian State Duma Budget Committee that the Central Bank printed 7 billion rubles in September, 3.5 billion in October and 10 billion rubles in November. She said, "Another 1.5 to 2 billion [rubles] is possible in the fourth quarter without impacting the [ruble] exchange rate." The committee considering the government's anti-crisis measures which calls for the Central Bank to buy 25 billion rubles of new government paper from the Finance Ministry in the fourth quarter. Finance Minister Mikhail ZADORNOV stressed that if the sale of the government's 2.5 percent stake in the Russian gas monopoly Gazprom is successful, then the size of emission could be reduced. He noted that 90 percent of proceeds from the money issue went to pay wages funded by the budget and pension fund.

Business

Gazprom Stake To Be Sold By Dec. 19th

· Russian gas monopoly Gazprom's deputy chief executive Sergei DUBININ said on Friday that a 2.5 percent of Gazprom will be sold on December 19th. While DUBININ did not identify any potential bidders for the 2.5 percent stake with a starting price of $651 million, it is believed that Germany's Ruhrgas is favored to buy the stake. He pointed out the Gazprom is merely acting as an adviser on the sale of the government stake, which was authorized by Russian President Boris YELTSIN in July. Russia's Federal Property Fund said that in January it will consider selling another Gazprom stake. DUBININ added that Gazprom and the government are negotiating a tax payment procedure for 1999. Gazprom accounts for a quarter of all tax revenues. He also mentioned that Gazprom was strongly against plans to impose export tariffs on gas, which could have make exports unprofitable. Gazprom instead proposes a reduction in the excise tax from 30 percent to 15 percent and imposing no additional export taxes.

Japan To help Modernize 20 Energy Plants

· United Energy Systems (UES) chairman Anatoly CHUBAIS said that Japan is providing funds under its ecological loan of $2 billion to modernize 20 energy facilities. The loan is provided for the next 40 years at a 1.5 percent interest rate per annum and a grace period of 10 years. Japanese and Russian experts are preparing feasibility studies for re-equipping each of the power stations. The studies will be

submitted to Russian authorities for approval in the first half of March, 1999. After modernization is complete, Russia will be able to reduce the volumes of carbon dioxide released into the atmosphere.

Meanwhile, the Russian State Duma on Wednesday will discuss whether to dismiss CHUBAIS as chief of the national electricity provider United Energy Systems of Russia. According to Viktor ILYUKHIN, the Duma industry, construction, transport and energy committee would motion a recommending resolution on CHUBAIS as chairman. He said, "Half of Russia has been left now without light and fuel, which is directly related with security of Russians, each citizen, the work of military-industrial facilities, with alert of our rocket nuclear forces. He admitted that final decision on whether CHUBAIS remains or goes is to be made at the level of the Russian president and shareholders

European Republics

Former PM Enters Belarus Presidential Race

· Belarus former prime minister Mikhail CHIGIR on Saturday announced he is willing to run for president. Two years ago, CHIGIR resigned from the post because he did not agree with President Alexander LUKASHENKO's course. Since then, he has remained in "the shadow," refraining from political activity and interviews. CHIGIR is viewed by many political analysts as LUKASHENKO's most serious contender, with the ability to win over many of LUKASHENKO's opponents and allies. CHIGIR has never made nationalistic statements. He supported integration with Russia, but at the same time was not against ties with the West. Belarus citizens remember him as a leader during times of low inflation, no deficit, and plenty of goods available in stores. It remains unclear when the presidential elections will be held. According to the 1994 Constitution, LUKASHENKO's presidency expires in about eight months. However, two years ago there was a constitutional referendum in the country, extending his term until 2001. Opposition movements are still working to nullify the referendum.

Ukraine-Georgia Sign Cooperation Documents

· Ukrainian Prime Minister Valery PUSTOVOITENKO arrived in Georgia Monday for a two-day official visit. In the evening, he met with State Minister Vazha

When you need to know it as it happens

Politics-Economics-Business

Page


Tuesday

December 8, 1998

Intercon's Daily

LORDKIPANIDZE and signed eight documents on cooperation. The documents, signed cover such fields as the economy, industry, trade, culture, transport and banking. Georgian Foreign Minister Irakly MENAGARISHVILI has accepted Ukraine's invitation for a meeting on its territory of representatives of the Georgian and Abkhazian sides to discuss confidence-building measures. Meetings of the Georgia and Abkhazia were held previously in Russia, Switzerland, Greece, and US.

While in Tblisi, PUSTOVOITENKO will hold talks with Georgian President Eduard SHEVARDNADZE and Parliament Speaker Zurab ZHVANIA. The sides are planning to discuss preparations for a long-term program of economic cooperation between the two countries for 1999-2008, as well as trade matters. The two sides intend to consider, "steps to pool efforts to soften the negative impact of the financial and economic crisis in Russia on the economies of Ukraine and Georgia" and to carry on dialogue on Ukraine's participation in the construction of a Baku-Supsa oil pipeline and the realization of the Ilyichovsk-Poti railway ferry project. The Prime Minister will also meet with members of the Georgian business community and visit the port of Poti, Senaki, and Supsa.

South Caucasus & Central Asia

Georgia-Russia Sign Border Protocols

· Chairman of the Georgian Border Department Lieutenant-General Valery CHKHEIDZE and Director of the Russian Federal Border Service Colonel-General Konstantin TOTSKY in Tblisi on Friday signed two protocols concerning the passing of several border sections controlled by Russian troops to Georgian border guards. The protocols are important because they outline a mechanism for the gradual passing of the Georgian state border under Tblisi control, TOTSKY said. Georgia assumed coastal control of Georgian territory in July and in September the port of Poti was turned over to the Georgian Border troops. The US assistance in helping to establish the Georgian Border Guards,

which did not exist in 1995, has been significant.

Unocal Withdraws From Centgas Project

· California-based Unocal has announced its quitting an international consortium of companies planning to construct a pipeline for transporting Turkmenistan's gas to Pakistan via Afghanistan. According to company spokesman Barry LANE, the corporation's decision was prompted by the need to trim spending amid declining oil prices in world markets. The Centgas project was estimated to cost $2.9 billion. Unocal had already spent $15 million developing the project since 1995. LANE said that Unocal withdrew from Central Asia because of shortage of good investment opportunities concurrent with the sagging oil prices. Unocal three months back declared suspending its part in the project of the Afghanistan-traversing gas pipeline after a flare of hostilities between the Islamic army Taliban and the opponent northern alliance. In addition, Taliban-US relations dramatically exacerbated after the US hit with cruise missiles Afghanistan's terrorist training camps. Unocal said that while it is abandoning its 54.4 percent stake in the project, it does not know the plans of the remaining consortium members: Delta Oil Company (15 percent), Itochu Corp. (7.22 percent) and Inpex (7.22 percent) and Hyundai (5.54 percent). Experts believe that Unocal's withdrawal from the project spells an end to it and may mark the beginning of an exodus from the region. In addition, Unocal will close its offices in Turkmenistan, Kazakhstan, and Uzbekistan. Unocal's Baku, Azerbaijan office will remain open.

New Direct Dial Service

· According to a company press release, the Macao Telecommunications Company (CTM) announced that it has provided seven new IDD destinations to customers. CTM offers international direct dialing service to the following countries and territories via the area codes: Azerbaijan (994), Turkmenistan (993), Kyrgyzstan (996), Tajikistan (7). Up to now, CTM has opened IDD service to 230 countries and territories around the world.


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

available for non-profit institutions.

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

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

Politics-Economics-Business

Page