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, January 26, 1999

struggle against crime and proposals on monetary and exports control. In the evening, ALBRIGHT and PRIMAKOV held a three hour informal meeting and dinner, which was designed to exert maximum influence and minimum effect. During the dinner, PRIMAKOV gave emotional appeals between toasts when describing the current situation in Russia. Intercon sources report that during the dinner when difficult discussions arose, guitar players were introduced to halt conversations and prevent any serious discussion. The dinner was clearly an attempt by the Russian side to stall for time. PRIMAKOV did not want to reach any decisions with the US nor meet serious US concerns. PRIMAKOV used this opportunity to emphasize that the US should not abandon him, because he is the best man to deal with Russia's problems today.

Duma To Drop Impeachment Hearings?

· Russian Prime Minister Yevgeny PRIMAKOV presented a letter to the Russian State Duma, which proposes that lawmakers drop impeachment proceedings against President Boris YELTSIN and in return YELTSIN will not use his power to dissolve the Duma for the rest of 1999. He also put forward a bill that would give YELTSIN immunity from prosecution after his term ends, along with a seat in the Federation Council, bodyguards, a government residence, and other privileges. The agreement would also give PRIMAKOV time to fill the top ranks of the Kremlin with loyal ministers, tighten his grips on the strings of power, and positions himself as YELTSIN's suc

Russian Federation

Politics

Albright Meetings Ineffective

· The US Secretary of State Madeleine ALBRIGHT and Russian President Boris YELTSIN today held a 25 minute telephone conversation, after YELTSIN failed to call on Monday as scheduled. ALBRIGHT did not ask why there was a change in plans, and YELTSIN did not volunteer an explanation. No American leader has laid eyes on YELTSIN since President CLINTON visited Moscow for a summit in September. The Secretary of State began the discussion by stressing the critical need for the two nations to manage their considerable problems in a way that does not upset relations or lead to divisions among the five permanent members of the UN Security Council. Then the sides talked in detail about the US call to revise the 1972 Anti-Ballistic Missile Treaty and plans to build an anti-ballistic missile defense system. ALBRIGHT also discussed this with Yabloko leader Grigory YAVLINSKY. He suggested the drafting of a treaty on anti-missile defense for the whole of Europe. YAVLINSKY believes that, "nuclear terrorism is a real threat, and America, the same as Russia, has the right to protect itself against it." Foreign Minister Igor IVANOV in meetings with ALBRIGHT said, "The central result of the visit of the US Secretary of State to Russia is the confirmation of the understanding, reached by the presidents of our two countries at their latest meeting in Moscow, on the proximity of strategic interests of Russia and the United States." ALBRIGHT urged Prime Minister Yevgeny PRIMAKOV and IVANOV to adopt a realistic budget and tax plan for raising revenues. Further US aid is contingent on an economic strategy approved by the International Monetary Fund. She also held talks with Krasnoyarsk Governor Alexander LEBED, which focused on ways of surmounting the economic crisis in Russia, the

Today's News Highlights

Russia

Soviet Debt Talks Delayed

Rosneft-Slavnet-Onako To Merge

European Republics

Kiev Assembles Moskvich Cars

Rus-Estonian Def. Min. Meet

South Caucasus & Central Asia

Adjar Sup. Council Demands

Elchibey Goes on Trial

Kazakh Cabinet Approved

American Murdered In Turkmen

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January 26, 1999

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cessor. The Communist-dominated Duma, critical of YELTSIN and his past decisions on free market reforms, have been in a long bitter battle to impeach and remove him. PRIMAKOV was largely hand picked by the Communists as a compromise prime minister and has enjoyed broad popularity, which may be starting to fail. His proposal received a mixed response from the Duma. Speaker of the Duma Communist Gennady SELEZNYEV warned that if the economy continues to decline, the Duma might register a vote of no confidence in the YELTSIN government in May. PRIMAKOV and Duma leaders will meet next week to try to call a political truce and discuss the proposal.

Kobaladze Appointed Head of Itar-Tass

· Yuri KOBALADZE, who worked as the spokesman of the Russian Foreign Intelligence Service when it was headed by Yevgeny PRIMAKOV, was appointed on Monday as first deputy Director General of the Itar-Tass news agency. KOBALADZE was set to be appointed deputy chairman of VGTRK Russian public television last Wednesday. Channel One Television, owned by media tycoon Boris BEREZOVSKY criticized the move of former KGB agents into top positions in the television media. This criticism has found its mark. It appears possible that these remarks forced executives to reconsider and move KOBALADZE's appointment as deputy chairman VGTRK television to chief of Itar-Tass. He was introduced to the Editors-in-Chief of the news agency by deputy Prime Minister Valentina MATVIENKO. He replaces Leonid NEVZLIN, who quit Itar-Tass last Fall and is now one of the top leaders of Yukos Oil Company. KOBALADZE worked with Tass and the USSR Gosteleradio (television and radio broadcasting committee) 25 years ago. From 1984-1991, KOBALADZE was on the Central Staff of the KGB First Main Directorate (foreign intelligence). Mikhail GUSMAN, the brother of popular TV anchorman Yuli GUSMAN, was appointed Itar-Tass deputy Director General. He replaces Nikolai FADEYEV. Visiting US Secretary of State Madeleine ALBRIGHT pledged $10 million in US aid to assist the development of Russia's independent media. Comment: The infiltration of known intelligence officers into high level media positions emphasizes the need to be cautious about what is reported in the Russian media. Recently, Itar-Tass claimed to have quoted Georgian State Minister Vazha LORDKIPANIZDE saying that

Russian bases in Georgia are a source of stability. He has denied making such statements. This erroneous quote also runs counter to Georgia's official government position on the issue and contradict statements made by Georgian chairman of the parliament Zurab ZHVANIA last week and Defense Minister David TEVZADZE last month in Washington. Georgian President Eduard SHEVARDNADZE has accused Russian newspaper Zavtra of, "printing downright slanderous and libelous articles," about him. He expressed hoped that Russia would remedy the situation. He said that he has always respected Georgian and foreign, including Russian journalists, many of whom, "work by world standards."

Economy

Ruble = 22.95/$1.00 (NY rate)

Ruble = 22.82/$1.00 (CB rate)

Ruble = 26.41/1 euro (CB rate)

Russia Soviet Debt Discussions Delayed

· Russian deputy finance minister Mikhail KASYANOV said, "Official talks with the Paris Club about a plan and conditions for restructuring the debt of the former Soviet Union can begin only after an agreement about an economic program has been reached between Russia and the International Monetary Fund (IMF)," the Financial Times reported. The Russian government has indicated that it can only pay $9.5 billion of the $17.5 billion of external debt payments. Russia has sizable arrears on its Soviet-era debt, but is current on its post-1992 debt. Some economists have suggested that the Group of Seven industrialized nations may write-off $38.7 billion of Russia's debts to the Paris Club, contingent on an economic program approved by the IMF.

Business

Rosneft-Slavneft-Onako To Merge

· Following a meeting between Russian Deputy Prime Minister Vladimir BULGAK and Fuel and Energy Minister Sergei GENERALOV on improving the position of the Russian oil sector, it was announced that Russian oil companies Rosneft, Slavneft, and Onako will be merged under a single holding, with 75 percent of the new structured owned by the government. Rosneft, which the government has tried to sell many time, is fully state owned; Slavneft is 75 percent state owned; Onako is 89

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percent state owned. BULGAK said that the merger process will begin during the first quarter, but should not signify the nationalization of companies. The merger will create Russia's fifth largest oil producer, with a combined output in 1998 of 32.23 million tons (650,000 barrels per day). He said the merger will, "strengthen Russia's oil muscles, improve management and cut overheads." BULGAK said that the Tyumen Oil Company (TNK), owned by the powerful Alfa Group is interested in joining the new entity. TNK produced 19 million tons of oil last year. Currently, Russia's leading oil producer is LUKoil, which extracts 63 million to 65 million tons each year, ranking fourth in the world. Russian oil companies have been forced to consider mergers due to low world oil prices, falling profits, and international trends. Other mergers include British Petroleum and Amoco, Exxon and Mobil and France's Total and Belgium's Petrofina. Despite an increase of over 11 million tons of oil exports last year, Russia earned $4 billion less than in 1997 because of the plunge in world oil prices.

The Russian government announced Monday that it is imposing a new duty on the export of crude oil. The government said a duty of 2.5 euros ($2.87) will be charged for crude exported at prices between $9.50 and $12, and 5 euros ($5.75) for oil sold at prices higher than $12. The state will begin imposing the duty eight days after the official publication of the government resolution.

Tuesday Tid-Bits

Film-Maker For President?

· If the US can have an actor run for president in the 1980s, why can't Russia have a film-maker as president in the new millennium. According to regional reports, Oscar-winning film-maker Nikita MIKHALKOV will run in Russia's presidential election in 2000. The film-maker is denying such reports. MIKHALKOV said, "I am going to participate in the presidential elections like any Russian citizen, as a voter." He stressed his point by saying, "It is not very Christian to discuss a possibility of presidential nomination in the country that two years ahead of elections has its living popularly elected president." MIKHALKOV also denied a statement reported in the newspapers that he had reached an agreement to be Russian oil and media mogul Boris BEREZOVSKY's

and some other powerful businessmen's chosen presidential candidate. The article claimed that BEREZOVSKY and other oligarchs would support his presidential campaign in return for later favors.

European Republics

Ukraine To Assemble Moskvich Cars

· Kiev's automobile maintenance plant Number 5 will start assembling Moskvich cars in February. The plant will assemble all modifications of the Moskvich, including those equipped with Renault and VAZ engines. The assembly of the cars is possible, under an agreement signed by the management of the Kiev plant and Moscow's AZLK automobile plant that makes Moskvich cars. At first, the plant will assemble cars from components supplied from Moscow. In the future, it plans to start the production of the cargo version of the car. Initially, the plant will make 100 to 150 cars a month. Further growth will depend on demand. Plant Number 5 and AZLK hope that the moderate price of its models will attract consumer demand. The Aleko assembled in Kiev will cost no more than $3,500. The more comfortable Knyaz Vladimir and Svyatoslav will be sold for $6,000. Last year, the sale of these cars in Ukraine increased by almost 100 percent.

Rus-Estonian Defense Minister Meet

· Russian Defense Minister Igor SERGEYEV on Sunday met with Commander of the Estonian Defense Force Lieutenant-General Johannes KERT, who has arrived in Moscow for a four- day visit. Estonia expressed an interest in Russia's military reforms, plans of military and technical re-equipping and prospects for cooperation. KERT said that Estonia does not feel any military threat from Russia and neighboring countries. SERGEYEV believes that, "Russia and Estonia are destined to enter the 21st century as good neighbors." The Estonian commander also held talks with Chief of the General Staff of the Russian Armed Forces Anatoly KVASHNIN on Monday. KERT stressed that Estonia will not use the Tartu airfield for strategic bombers or any other military purpose, if Estonia is invited to join NATO. He said that it will not be used by NATO airplanes. KVASHNIN is strongly against NATO's eastward expansion. The two sides also discussed military and military-technical cooperation. During his visit, the Estonian military leader is expected to tour the

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Military Academy of the General Staff, where he will meet with the teaching staff.

South Caucasus & Central Asia

Adjar Supreme Council Presents Demands

· According to Adjaria's Supreme Council chairman Aslan ABASHIDZE, deputies from Adjaria will participate in the work of the Georgian parliament, if the parliament enacts legislation creating free economic zones in Georgia and elects a representative from Adjaria as deputy speaker. Many view this as an attempt to structuralize corruption within Adjaria. Adjaria deputies withdrew from the parliament last summer. In addition, ABASHIDZE accused Georgian border guards of engaging in espionage activities in Adjaria to destabilize the political situation. Comment: It is difficult to imagine how espionage can be conducted within a country by the country's own government. Unless, the Adjarian government is implicitly admitting to other relationships with outside powers, which constitutes espionage itself.

Elchibey's Trial Delayed

· The trial of former Azeri president Abulfaz ELCHIBEY on charges for insulting the honor and dignity of the head of state Geidar ALIYEV began Monday but was postponed until today. The extension was granted after his lawyers complained they had not been given all the information surrounding the case against ELCHIBEY. Speaking at a press conference on November 6, 1998, ELCHIBEY said that, "Geidar ALIYEV, as one of the leaders of the USSR, was one of the creators of the Kurdish Workers' Party (PKK)." The statement was circulated by the opposition press and was met with broad response in the country and abroad. The Azeri Justice Ministry claimed the remarks were, "an insult to the incumbent president." The PKK has been outlaws as a terrorist organization in Turkey. Azerbaijan enjoys bilateral relations with Turkey, which is led by ALIYEV's close friend President Suleyman DEMIREL. If the court finds ELCHIBEY guilty, then the Azeri opposition leader, who was the president

between June 7, 1992, and June 24, 1993, when he was removed from his post by a nationwide referendum, will face a sentence of a six-years in jail.

Delta-Amerada Hess Sign Oil Contract

· An alliance of Delta Oil Central Asia and Amerada Hess Corp. has signed a production-sharing agreement covering the 116,000 acre onshore Kursangi Karabagli Bloc in Azerbaijan, according to Bridge News. Delta-Hess holds a 20 percent stake in the project, with the other 50 percent held by State Oil Company of Azerbaijan (Socar), and 30 percent by the Frontera Resources. The bloc contains two giant fields that produce 4,200 barrels per day. The bloc's reserves are estimated to be 100 million metric tons of oil. The project's cost is estimated to be between $700 million and $1 billion.

Kazakhstan President Approves New Cabinet

· Kazakhstan President Nursultan NAZARBAYEV on Friday signed a decree on the formation of a new cabinet of ministers, thereby approving all the 14 of its members nominated by Prime Minister Nursultan BALGIMBAYEV. Alexander PAVLOV was appointed deputy prime minister. Uraz DZHANDOSOV was appointed deputy prime minister and finance minister, and Zhanybek KARIBZHANOV deputy prime minister and agriculture minister. Interior Minister Kasymzhomart TOKAYEV and Defense Minister Mukhtar ALTYNBAYEV retained their posts in the new government. Aitkul SAMAKOVA was appointed to a new post of minister or chairperson of the committee for women's affairs.

US Oil Employee Murdered In Turkmenistan

· Robert CARR, an employee for 25 years of Halliburton Co., a Dallas-based oil service provider, was found strangled to death in his apartment in Turkmenbashi earlier this month. Audio and video equipment, and other valuables were missing from his apartment. Julia HUMPHREYS, a spokeswoman for Halliburton confirmed that the had been notified of CARR's death. The Turkmen police are continuing their investigation.

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

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