DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, January 27, 1999

Russian Federation

Politics

Primakov Steps Outside Of His Power Limits

· Russian Prime Minister Yevgeny PRIMAKOV's proposal aimed a reaching a political truce, which would effectively neutralize the presidency until elections in 2000, marks the first time PRIMAKOV has acted outside of his power limits. The proposal calls on Russian State Duma deputies to drop their impeachment case against President Boris YELTSIN and promise not to hold a vote of no confidence. YELTSIN would receive immunity from prosecution after he leaves office, a seat in the Federation Council, bodyguards, free travel, and promise not to dissolve the Duma. Political analysts believe such a truce would protect the government from political shocks, during Russia's economic reforms, and would promote PRIMAKOV as YELTSIN's successor. The Prime Minister said that he had coordinated with the President over the plan. However, Deputy Chief of Staff Oleg SYSUYEV on the NTV Hero of the Day program said that neither the President nor his aides helped to draft the proposal. He made it clear that the presidential side does not embrace all of provisions of the pact. The Kremlin issued statements Tuesday saying YELTSIN thought the PRIMAKOV proposal, which would require the president to give up his powers to dismiss parliament until the end of the year, was unconstitutional. SYSUYEV added YELTSIN, "is of the opinion that observance of all constitutional rights of all branches of power is a crucial instrument for achieving stability and accord." The President typically clears his entire government when he suspects that officials in his government are gaining too much influence or having excessive ambitions. PRIMAKOV has vehemently denied any aspirations to run for President. YELTSIN met PRIMAKOV today in the Central Clinical Hospital, which may be linked to a PRIMAKOV's proposed

political accord between the President, the government and the parliament that would weaken YELTSIN's power.

Strong Regions, Strong Russia Party Forms

· Krasnoyarsk Governor Alexander LEBED's Honor and Motherland Movement appears to have split, after former chairman of the movement's council Viktor ZUBAREV held a council meeting separate from LEBED. ZUBAREV issued a statement following the meeting which said that LEBED is no longer the leader of the movement and the local branch of the movement will be called Strong Regions, Strong Russia, RFE\RL Newsline reported. LEBED's popularity is waning. Articles in Izvestia, owned by Vagit ALEKPEROV President of Russia's oil company LUKoil, said, "LEBED has failed to become a real governor and has remained a general, using security structures as his controlling instruments." The newspaper also predicted that LEBED's "political burial is at hand," with Krasnoyarsk Aluminum chief Anatoly BYKOV as his undertaker.

Russia To Export High-tech To China

· Russian Prime Minister Yevgeny PRIMAKOV on Tuesday said that Russia is ready to sell to China advanced technologies, in his opening address to the second plenary session of the Russian-Chinese friendship, peace and development committee in Moscow. Discussions at the conference, also known as the Committee of the 21st Century, focused on strengthening of trade and economic coopera

Today's News Highlights

Russia

IMF Loan Talks Set To Begin

LUKoil Earns Azeri Oil Credit

European Republics

IMF Team Leaves Ukraine

Rus-Belarus Share Intelligence

South Caucasus & Central Asia

Giorgadze Candidate For Office

US Reacts To S-300 Deliveries

Azeri To Decide On NATO Base

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January 27, 1999

Intercon's Daily

tion between Russian and Chinese regions. PRIMAKOV said, "the Russian government relates prospects of the development of trade and economic contacts with the [Chinese People's Republic] to realistic projects — gas pipelines, oil pipelines that will nourish the growing Chinese economy with electric energy and energy-carriers [fuels]." He noted that both countries have the ability to increase economic ties which lag behind political ones. Bilateral trade in 1998 decreased by 6.8 percent. Trade and economic relations were also affected by the Asian financial crisis and the banking and financial crisis in Russia. Decisions and results of the forum may be included on the agenda of talks between Russia and China during Chinese Prime Minister ZHU Rongji's official visit to Moscow at the end of February. Details of Russian-Chinese cooperation will be discussed in the humanitarian and economic sections on January 27th and 28th. The Committee of the 21st Century, created by the leaders of Russia and China, comprises representatives of public, political, scientific and business circles.

Economy

Ruble = 22.82/$1.00 (NY rate)

Ruble = 2267/$1.00 (CB rate)

IMF Loan Talks To Begin After Reviews

· An International Monetary Fund (IMF) mission has been in Russia for a week, although talks on possible new loans have not taken place. The IMF team has been studying Russia's economic plans and the budget for 1999 as part of the an annual review. Russia is seeking a new loan from the IMF to offset $4.5 billion in payments owed to the Fund in 1999. Deputy Finance Minister Oleg VYUGIN said, "We are well aware that to begin talking about this [new loans] can happen only after we agree our positions on the 1999 budget and also about those measures which the government is proposing in the spheres of financial and fiscal policies." Finance Minister Mikhail ZADORNOV on Tuesday commented that talks between the government and IMF mission, "were going normally." The IMF has harshly criticized the draft 1999 budget, calling it unrealistic for its optimistic estimates on tax revenues, inflation, and the stabilization of the ruble. Russian State Duma speaker Gennady SELEZNYOV in talks with US Secretary of State Madeleine ALBRIGHT stated that he felt the IMF was "mocking our government," by asking for

proof of reforms. One senior US official said, "what we want to do is encourage a closer set of negotiations with the IMF to encourage the Russians to think creatively as to how they can work within their political process to come up with economic solutions that make sense," Reuters reported. An IMF led aid package of $22.6 billion has been on hold since August, when the government defaulted on its Treasury debt and devalued the ruble. Future World Bank loans, US aid, and talks with the Paris Club on restructuring Soviet-era debt are dependent on the government and IMF reaching an agreement.

Russia Continues WTO Accession Talks

· Russian Minister of Agriculture and Food Viktor SEMYONOV said on Saturday at the Agroforum in Berlin said that Russia will continue accession talks with the World Trade Organization (WTO). He stressed, "the most important thing is that we should be considered as equal partners during the talks and that the entire range of economic questions which may arise during the accession to this organization should be taken into account." The forum is being attended by more than 1,500 enterprises and firms from 57 countries, including Russia. SEMYONOV took part in some of the forum events and met his German counterpart Karl-Heinz FUNKE. "Our talks were general. We met today as two new federal ministers and I would say that these were talks on understanding. We synchronized our positions and just get acquainted with each other," he said.

Business

LUKoil Earns Credit For Azeri Early Oil Project

· LUKoil Vice President Leonid FEDUN on Friday announced that his company, "The Russian LUKoil company has received a credit of $77.2 million to finance its participation in the extraction of `early' oil in Azerbaijan, in other words, for carrying out the first stage of the development of the Azeri, Chirag, and Gyuneshli deposits on the Caspian Sea shelf." He said that this credit was granted on easy terms for a period of eight years by the European Bank for Reconstruction and Development (EBRD) jointly with the International Financial Corporation (IFC). The financing coordinators include several large western banks, particularly Citibank, Dresdner Kleinwort Benson, and Societe Generale. In addition, credits totaling $400 million, were received by other members of the consortium, which was set up

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to tap the three above-mentioned deposits on the Caspian shelf. LUKoil's share in this project is ten percent. The credits are intended to finance the necessary construction jobs, to modernize the existing technological installations, and to transport the "early" oil. The oil output on contract deposits, which began in November 1997, equals approximately 10,000 ton per day. All this petroleum is being piped across Russia to the Black Sea port of Novorossiisk. LUKoil President Vagit ALEKPEROV said that the credit obtained for the project was a remarkable success for the company, proving that LUKoil was able to retain the trust of investors during and after the economic crisis.

ting itself to a resumption of the IMF aid. Under the Extended Fund Facility program set up last September, Kiev should receive $2.2 billion by 2001. In September and October 1998, Ukraine received two tranches worth $336 million. However, the IMF suspended the loan in November because of the government's slow reforms and poor tax collection. Ukrainian Prime Minister Valery PUSTOVOITENKO said that the IMF wants Ukraine to adopt more effective structural reforms and restructure the energy sector and Finance Ministry. The Finance Ministry warns that it may default on foreign debt payments this year unless international lending institutions resume assistance. Ukraine is due to pay $1.17 billion to foreign creditors, but its National Bank, holding only $1 billion in reserves, must also pay $700 million to the IMF for earlier loans. The IMF noted some of Ukraine's positive developments, including the timely adoption of the 1999 budget, improved tax collection, stable exchange rate for the gryvnia, and macro-economic stability. Presidential aide Valery LYTVYTSKY said that further consultations may continue on the missions return or after a government visit to IMF headquarters.

Rus-Belarus To Share Intelligence, Customs

· Belarus President Alexander LUKASHENKO met Russian Foreign Intelligence chief Vyacheslav TRUBNIKOV on Monday. National television said that their discussion focused on cooperation between the special services of the two countries. LUKASHENKO praised the mastery of foreign intelligence services despite economic and political changes. He noted that these structures have not disintegrated and it will be easier for them to build their relations and coordinate their activities aimed at ensuring the security of the two countries.

Meanwhile, Deputy Chairman of the Belarus Customs Committee Vladimir GOSHIN said that the two sides are drafting a new agreement on the customs union to be signed by the end of this year. He added, "it is necessary to create a mechanism of the customs union functioning, and a new agreement is being drafted," to supplement the 1995 agreement. The new document will define of the customs union, set its borders, territory and principles of the functioning: the procedure of customs clearance, customs regimes, ways to punish breakers of customs rules and collect customs payments.

China-Russia Sign Air Link Agreement

· Hong Kong Special Administrative Region (SAR) of China on Friday signed an air services agreement with Russia, forging a legal framework for expanding the air links between Hong Kong and Russia. The SAR's Secretary for Economic Services Stephen IP said that it is, "an important milestone in the development of Hong Kong's economic relationship with Russia. The agreement will help to forge closer ties between the two places in areas such as aviation, tourism and trade." Gennady ZAITSEV, director general of the Federal Aviation Authority of Russia, said that the first government-level air agreement between Hong Kong and Moscow provides, "solid basis for tourism and cultural exchanges, and maybe more cargo transportation." Direct air services between Moscow and Hong Kong began in 1992, operated by the Russian Aeroflot International Airlines. Since then, bilateral trade with Russia and the number of Russian visitors to Hong Kong have both increased by about three times.

Aeroflot Offers New Route

·A TU-154 plane of the Russian Aeroflot International Airlines company has begun offering regular flights along the Moscow-Nizhnevartovsk-Moscow route three times a week: on Mondays, Thursdays, and Saturdays. The flight has three classes tickets ranging in costs from 3,200 rubles to 5,800 rubles.

European Republics

IMF Leaves Ukraine Without Loan Commitment

· An International Monetary Fund (IMF) mission, lead by Mohammed SHADMAN-VALAVI, has completed its work in Ukraine, but refrained from commit

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South Caucasus & Central Asia

Accused Giorgadze To Run For Office

· Former Security Minister accused of masterminding the August 1995 assassination attempt of Georgian President Eduard SHEVARDNADZE, Igor GIORGADZEcontinues his propaganda war against the SHEVARDNADZE government. GIORGADZE recently appeared on three Russian television programs, attacking SHEVARDNADZE around Christmas. Now posters depicting GIORGADZE decorated the streets of Zugdidi, on Tuesday, following SHEVARDNADZE's 71st birthday. Posters, bearing the slogan "The Future Is Ours," also appeared in other regions of Georgia. Head of the United Communist Party of Georgia and GIORGADZE's father, Panteleimon GIORGADZE said that Igor may be one of the party's candidates for Fall parliamentary elections. His supporters claim that Igor GIORGADZE is already gearing up for presidential elections in 2000, but most agree that this continues to be part of Russia's great game in the Caucasus. GIORGADZE fled Georgia on Russian military aircraft, just before being arrested by Georgian law enforcement authorities in 1995. He is currently wanted under an Interpol warrant [A-641/12-1995] issued September 26, 1995. While claiming to be in Syria, he has been observed in Russia and Belarus, where he is being protected by security officials. Intercon sources report that GIORGADZE also travels to Russian military bases in Armenia to meet his father, Panteleimon.

Tonight, the Discovery Channel is airing a program "Protecting The President" at 9 pm eastern standard time, concerning the assassination attempts on SHEVARDNADZE in August 1995 and February 1998.

US Reaction To S-300 Missile Deliveries

· Tuesday at a US State Department briefing, Deputy spokesman James FOLEY commented on Russia's plans to deliver S-300 missiles and MiG-29

fighter jets to Armenia, in addition to known illegal-arms transfers from Russia at an estimated value of $1 billion. FOLEY said, "We have seen press reports from about 10 days ago on statements by Major General GRIGORIEV about the deployment of Russian SAM missiles in Armenia to replace older model missiles. Russia and Armenia have a mutual [defense] agreement. Therefore, this matter is a bilateral issue between Russian and Armenia. The United States sees no need for the deployment of these missiles in Armenia. We believe that their deployment will not improve security in the region."

According to RFE\RL's Astana bureau, Russia on Tuesday delivered four SU-27 military jets to Kazakhstan in part payment for its lease of the Baikonur space complex. According to Interfax, Russia will also provide Kazakhstan with another 12 aircraft and with S-300 anti-aircraft systems to upgrade the security of Astana.

NATO Base in Azeri, Sooner Rather Than Later

· Azeri presidential foreign policy adviser Vafa GULIZADE believes that a decision on the transfer of a NATO airbase from Turkey to Azerbaijan's Apsheron peninsula should be decided sooner rather than later. He urged President Geidar ALIYEV and Turkish President Suleyman DEMIREL to reach an agreement during ALIYEV's current visit. GULIZADE warned that the transfer of Azeri oil to Turkey from the Caspian Sea is at risk without proper security guarantees. He also stressed that Azerbaijan is "in danger" of a possible attack from Armenia, with Russia's backing and deliveries of new armaments. He said, "The Russian elite is trying to restore the old empire and the Armenian-Azerbaijan conflict is used as a means of reaching this objective." Moscow angrily denied the possibility of an attack and demanded that Baku withdraw GULIZADE's accusations. Russian State Duma Defense Committee chairman Roman POPKOVICH argued that there is no need for a NATO base in Azerbaijan. He warned that Russia has "even more" strategic interests in the Caucasus than the US, RFE\RL Newsline reported.

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

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