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 9, 1998

Makarov Appointed Deputy Chief Of Staff

· Russian President Boris YELTSIN on Monday appointed Vladimir MAKAROV to be deputy chief of staff of the presidential administration. MAKAROV has worked at the Soviet KGB and then at the Federal Agency of Government Communications and Information under the Russian President. In 1992 to 1994, he was deputy general director of this agency and head of its Personnel Department. MAKAROV has the rank of major-general.

Kvashnin Visits US Military Bases

· Chief of Staff of the Russian Armed Forces Army General Anatoly KVASHNIN is on an official visit to the US. During his visit he has toured the US naval base in Pearl Harbor, Hawaii, Center for the combat use of aviation weapons of the US. Air forces at the Nellis base in Nevada, and the national training center at Fort Irvin, California. He held meeting with Deputy Commander in Chief of the US Armed Forces in the Pacific Lieutenant General Randolf HAUSE and a briefing on Russian-American cooperation in the military field for 1999. Today, he is scheduled to visit the North American aerospace defense command point and the US Airforce space command located near Colorado Springs in Colorado for a meeting with the leadership of the complex. Afterwards, KVASHNIN will fly to Florida to tour the Airforce base Jacksonville and the aircraft carrier John F. Kennedy. He will then leave for top level meetings in Washington with Secretary of Defense William COHEN and Chief of Staffs General Henry SHEL-

Russian Federation


US Top Administration Officials To Visit Russia

· A delegation of the US administration's high level officials, including First Deputy Secretary of State Strobe TALBOTT, First Deputy Treasury Secretary Lawrence SUMMERS and the vice-president's national security aide Leon FUERTH, will visit Moscow on Thursday to discuss bilateral issues, key international and regional problems, disarmament and arms control, Russia's economic situation, and the government's anti-crisis measures. The delegation will meet with Russian Prime Minister Yevgeny PRIMAKOV, First Deputy Prime Minister Yuri MASLYUKOV, Central Bank chairman Viktor GERASHCHENKO, Finance Minister Mikhail ZADORNOV and other government and parliamentary leaders. The US State Department stated that this trip is part of regular consultations between US and Russia and it is a continuation of talks held in Kuala Lumpur between PRIMAKOV, US Vice President Albert GORE, and Russian Foreign Minister Igor IVANOV and US Secretary of State Madeleine ALBRIGHT. The US delegation is going to discuss in Moscow a broad range of issues with a focus on Russia's economic situation. The State Department said the US administration is of the view that the crucial task of the Russian government now is to generate a "solid program" which would help a radical change in the economic situation and Russia's getting the Western assistance. The US is hoping Russia will plan for a lower budget deficit, stabilization of the ruble's exchange rate, containment of inflation, restructuring of the banking sector, restoration of the settlements system, and generation of acceptable modes for Russia meeting its obligations to creditors.

Today's News Highlights


November Tax Collection Figures

Consolidation Of Oil Companies

European Republics

Latvia-China Ties Strengthened

Philips Opens Regional Office

Kuchma Signs WB Deal

South Caucasus & Central Asia

Investment In Georgian Tobacco

CIS-BSEC Sign Accord

Turkmen-Ukraine Talk Gas




December 9, 1998

Intercon's Daily

TON. The main goal of KVASHNIN's visit to the US is to develop bilateral military cooperation, but he is also expected to focus on relations between Russia and NATO. On Friday morning, he will continue his international tour to Cuba.


Ruble = 20.43/$1.00 (NY rate)

Ruble = 20.08/$1.00 (CB rate)

Yeltsin Submits Bill On Bankruptcy Of Banks

· Russian President Boris YELTSIN submitted to the Russian State Duma his own draft law on bankruptcy proceedings for financial and credit institutions. This edition differs from the law which was adopted by the Duma in September 1998, approved by the Federation Council in October, but rejected by the President. The new draft law envisages control over the work of crediting institution to be exercised not only by the Central Bank, but also by federal executive bodies. The Presidential bill provides for legislative regulation of measures to revitalize financially credit institutions, as well as for peculiar features in implementing bankruptcy procedures with respect to credit institutions. Included in the bills measures are stronger state control over the operation of credit institutions, protection of creditors' interests, a broader range of people, participating in implementation of bankruptcy procedures, and a plan to revitalize financially credit institutions.

CB Investigation Finds Corruption

· Russian Prosecutor-General Yuri SKURATOV said on Tuesday that the Office of the Prosecutor-General is concluding a check of the activity of the Russian Central Bank during the events of August 17th. The auditing chamber has completed its work on the matter and is drafting final documents to be referred to the office of the Prosecutor-General for the final check. SKURATOV noted that in investigating the Central Bank's activity the procurator's office instituted three criminal proceedings: on the use of funds for hospitality, in connection with inadequate control over currency operations and in connection with operations of legal and natural persons in the market of GKO treasury bills. Regarding operations of legal and natural persons in the GKO market, the procurator-general said they show, "many interesting things as they involve officials working with the Finance Ministry, the Russian Central Bank, and

other government institutions, who should not engage in such activities." SKURATOV stressed that, "it is necessary to put things in order on the top level. If the system itself, the Finance Ministry, for example, keeps under control the actions of its staff members, then the needed results will be achieved." He added, "We can clear off corruption in the top management, but we cannot do their job for them and put things in order at their institution. This should be done by the top management of each particular institution."

Tax Collection Increases In November

· Russia's State Tax Service collected 18 billion rubles in tax revenue to the Federal budget in November, excluding receipts from the Federal Road Fund. This total is 29 percent more than taxes collected in October. More than 70 percent of tax revenue in November came in cash, a tax official pointed out. The 9.48 billion ruble target for November's tax collection, was exceeded by 89.7 percent. The largest amount of tax payments came from Russian gas monopoly Gazprom, Mezhregiongaz, the Russian United Energy Systems, Slavneft, Sibneft, the GAZ public joint-stock company, and the Russian Ministry of Railways.

Cracking Down On Tax Evaders?

· A Russian Federal Tax Police Service report shows that a total of 15,471 violations of tax laws were revealed by the Russian tax police in January-October 1998, and 5,130 criminal proceedings were instituted. It is estimated that 998 people were sentenced for tax-dodging. Some 25.2 billion rubles were charged extra on all types of taxes and dues in the first ten months of this year. A total of 3.2 billion rubles were collected for the budget as compared to 121 billion rubles in the past years.

WB Experts Evaluate Russian Economy

· A team of World Bank experts arrived in Moscow on Monday to continue loan talks with the Central Bank and Finance Ministry. The World Bank economists will focus on reconsidering terms for previously promised $1.5 billion structural reform loan, $800 million social reform credit, and $800 million coal industry loan. Their recommendations will be presented to the World Bank's board of directors later this month. The team's evaluation may determine whether Russia will be left without foreign aid and forced begin printing large sums of money to pay off a total foreign currency debt of $158.8 billion by

When you need to know it as it happens




December 9, 1998

Intercon's Daily

January. The Russian currency, trading at 20 ruble to the dollar, has slipped to a record low, since the financial crisis hit the Russian market in August.


Some Sidanko Restrictions Lifted

· A spokesman for the Russian Fuel and Energy Ministry on Tuesday announced that the government has lifted some oil export restrictions imposed on Sidanko, the nation's fifth largest oil company. Sidanko has the right to export as much as 37,000 tons of crude in December. This restriction was lifted because the company produced proof that it had paid all its taxes to the federal budget. But another restriction from November remains in place. Sidanko is not permitted to access export pipelines by 200,000 tons because it failed to supply local refineries. Sidanko's export quota for the third quarter of 1998 was 1.9 million tons (150,000 barrels per day). Additionally, a Nyagan arbitration court has declared that the production unit Kondpetroleum is bankrupt. A special manager was appointed by the court to arrange the sale of Kondpetroleum assets to cover its debts. In November, Vladimir POTANIN, head of the Interros financial industrial group which controls Sidanko, said he was prepared to give the state a stake in Kondpetroleum and Angarsk Oil Refinery to settle debt arrears. A Sidanko spokesman said that it will take steps to reverse the court's decision.

Consolidating Russia's Oil Companies

· Russian Deputy Prime Minister Vladimir BULGAK on Tuesday hosted a meeting for merging Russia's biggest oil companies; three options were proposed. According to BULGAK, 13 oil companies are too many for Russia during this crisis. But under the Russian anti-monopoly law, the country may have at least three to four oil producing companies. LUKoil's President Vagit ALEKPEROV proposes to join two oil companies ONAKO and Slavneft to his company. Yukos President Mikhail KHODORKOVSKY's variant calls to join Rosneft and ONAKO to his company. The Energy Ministry's proposal is to set up a national oil company uniting Rosneft, Slavneft, ONAKO and Zarubezhneft as well as state share blocks in other oil enterprises, which have "inefficient" economic activities. The meeting is the first stage of the merging process, at which the companies are to work out their strategy to resolve the situation. The next

stage will envisage developing the consolidation mechanism. The final stage will work out specific enactments and changes to the law. BULGAK pointed out that the process must be rapid since the oil crisis waits for no one and nothing. He added that uniting the oil companies will lower the per barrel oil production cost by 5 percent to 7 percent. The drop in world oil prices from $20 per barrel in 1997 to $9 at present has caused the oil industry to reconsider its format. The world's total oil output is 2.4 billion to 2.5 billion tons a year, with Russia accounting for 300 million tons. Russia exports almost a third of its oil output.

European Republics

Latvia-China Strengthen Ties

· Latvia's new Prime Minister Vilis KRISTOPANS Tuesday said that Riga values its ties with China and hopes to have broader trade and economic cooperation between the two countries. KRISTOPANS, who took office in late November, told Chinese Ambassador to Latvia YAO Peisheng that the recent opening of Latvian Embassy in Beijing was an indication of Riga's commitment to better ties with China. He said Latvia welcomes China to take advantage of the Europe-Asia Continental Corridor and the Baltic country's ports to do business with Western European and Nordic countries. YAO praised Latvia's achievement in trade and diplomatic fronts, noting the stable development of China-Latvia cooperation in political, cultural, and educational fields. He thanked the Latvian government for its one-China policy over the Taiwan issue.

Philips Opens Regional Headquarters

· On Monday, Philips announced that it has establish a new regional headquarters for Central and Eastern Europe, in Prague. The office, to be operational starting January 1, 1999, will cover Philips' activities in thirty countries including Russia, Estonia, Latvia, Lithuania, Belarus, Romania, Turkey, Armenia, Azerbaijan, Georgia, Ukraine, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. The move underlines the importance of the new emerging economies for the company. It also shows Philips' confidence in the potential of the region and determination to become an even more important player there. According to a company press release, the new headquarters is part of the company's governance program in which regional

When you need to know it as it happens




December 9, 1998

Intercon's Daily

executive offices play an important role as leading facilitators of the Philips brand in the market place.

Kuchma Signs WB Deal

· Ukrainian President Leonid KUCHMA signed a draft law on a $200 million World Bank loan to upgrade Kiev's heating system. Implementation of a World Bank project can not start until it is ratified by the parliament. The loan is to be used to modernize the city's power plants. The World Bank has said that the loan is subject to the International Monetary Fund's (IMF) approval of the government's reform program. World Bank director for Ukraine and Belarus Paul SIEGELBAUM said, "As long as the conditions are such the International Monetary Fund has not said it can disburse under the EFF program [Extended Fund Facility], we will do the same and postpone the disbursement."

South Caucasus & Central Asia

Canadian Invests In Georgia Tobacco

· Georgia's Deputy Minister of Agriculture and Food Vladimir GVARDZHALADZE today announced that Canadian businessman Arcane NASSER has decided to invest $20 million in Georgia's tobacco industry. NASSER hopes to open a tobacco factory in Tblisi. GVARDZHALADZE said investments will be distributed as follows: $8 million to be spent on equipment, $7 million on rehabilitation of plants, and $5 million on the purchase of rawstuff. The Deputy Minister said the prospective factory is to produce cigarettes for ten destinations. The price of a pack of cigarettes is expected to be less than cigarettes which are being imported. In November, the Georgian government collected $3.5 million in tax revenues on cigarettes.

CIS IPA And BSEC PA Sign Accord

· Following the first ever joint meeting of the Commonwealth of Independent States (CIS) Interparliamentary Assembly and the Parliamentary Assembly of the Black Sea Economic Cooperation (BSEC), the councils' chairmen Yegor STROYEV

and Gennady SELEZNYOV signed a protocol for the exchanging of meetings' agendas and other documents. Overshadowing the signing was the refusal of the Turkish Delegation to agree to the protocol, citing that there was no related clause in the rules of the BSEC. The protocol was signed in St. Petersburg by all delegations but the Turkish one. It outlined the reasons behind Turkey's refusal. The CIS Interparliamentary Assembly has similar protocols with the Parliamentary Assemblies of the Council of Europe and the OSCE. The CIS Inter-parliamentary Assembly held its 12th plenary meeting and the BSEC separately held its 12th General Assembly. The agenda of the BSEC Assembly included a wide range of matters concerning economic, political, and cultural cooperation in the region, specifically Black Sea transportation, a legal basis for the prevention of double taxation, and mutual recognition of higher education certificates by BSEC countries. The CIS Interparliamentary Assembly's agenda, "will focus on improving CIS activities and on reforming the CIS."

Turkmen-Ukraine To Resume Gas Talks

· Negotiations on Turkmen gas exports to Ukraine resumed in Ashgabat today, following an agreement between Ukrainian President Leonid KUCHMA and Turkmen leader Saparmurat NIYAZOV on Friday. The Ukrainian delegation is led by Board Chairman of the Neftegaz Ukrainy national joint stock company Igor BAKAI. The negotiations deal with the delivery of 20,000 million cubic meters of gas. This annual quota is recorded in the agreement, signed on January 29th, on the delivery of Turkmen gas to Ukraine in the period ending in the year 2005. The Turkmen gas exports in the northern direction stopped in March 1997, and negotiations started to coordinate conditions of the Russian transit of the Turkmen gas both at an intergovernmental and interdepartmental level. However, the export of gas had not resumed until now due to disagreements with Gazprom. KUCHMA said, "The problem of transportation of the Turkmen gas by Russian pipelines to the Ukrainian markets is now being solved."

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

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.

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