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, January 6, 1999

station will be able to detect signals of short-term radiation sources, emitting signals with a complicated frequency-time structure and also jamming signals. The surveillance system may be used to assess the radio-electronic situation in the area of industrial centers, airports, sea harbors, and to control the radiation of radio-electronic stations in the process of production and exploitation. The station designers claim that the inclusion of Orions in the anti-aircraft defense system will boost its effectiveness by almost 30 percent. TERESHKOV noted that approximately 20 foreign countries have shown interest in the Spec-Radio. The Defense Ministry of Algeria and Roosvooruzheniye have already signed a $8.5 million contract for the delivery of three passive radar stations, assembled in a single complex, to its radio-electronic combat troops.

Yeltsin Tightens Hi-Tech Export Controls

· Russian President Boris YELTSIN on Tuesday signed two important decrees tightening control over the export of materials and technologies, used in the production of missile weapons, as well as dual-purpose goods and technologies. The decrees broadens a lists of items that will be banned for export to prevent the spread of missile technology. The presidential press service did not release the list of controlled items. The US and Israel have criticized Russia with exporting missile technology to Iran, with or without the govern-ment's knowledge. One presidential representative said, "The issue of these decrees is yet another graphic evidence of

Russian Federation

Politics

Yeltsin Approves FSB Personnel Policy

· The command staff of Russia's Federal Security Service (FSB) met on Tuesday to discuss the results of the work of a special Security Council commission. This commission inspected the FSB's operational activity and its personnel, following reports in the media and a letter from tycoon and Executive Secretary of the Commonwealth of Independent States Boris BEREZOVSKY that FSB officers had been ordered to assassinate him and other prominent businessmen. The meeting was chaired by FSB chief Vladimir PUTIN and it heard an address by the Russian President's Chief of Staff Nikolai BORDYUZHA, who is also Secretary of the Security Council of Russia. BORDYUZHA noted that Russian President Boris YELTSIN had approved the conclusions drawn by the Security Council Commission after a thorough check over the legality of the decisions made by in the FSB on the organization of its operational activity and human resources management. The results show that no orders had been given within the FSB system mandating its officers to take actions beyond the boundaries of the "law concerning the operational and detective activity" and other regulatory enactments. The FSB admitted that mistakes had been made in the FSB operational and service activity, including in the personnel recruitment and placement.

New Surveillance System Tested

· Director of the Spec-Radio Moscow Office Vladimir TERESHKOV said, "The Spec-Radio Scientific and Production Enterprise has begun to test a new Russian electronic surveillance system—the Orion." Tests of the two experimental models of a mobile automatic electronic surveillance station were ordered by the Russian Defense Ministry. The Orion

Today's News Highlights

Russia

Ruble Falls Sharply Tuesday

New Railroad Link To Be Built

European Republics

Tele Danmark Stakes In Lith Co

Ukraine Secret Service Results

South Caucasus & Central Asia

AES Controls Telasi Power

Azeri Oil Exceeds Targets

Kazakh Election Criticisms

Samsung To Build Kyrgyz Roads

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January 6, 1999

Intercon's Daily

Russia's adherence to the policy of non-proliferation of nuclear weapons and its course of the strengthening of the national system of export control." Vice president of the Board of military experts of the Russian Federation Major-General Alexander VLADIMIROV said that Russia strictly observes international agreements technology transfer restrictions. YELTSIN has introduced several changes over recent years to strengthen control over the export of hi-tech dual use materials and equipment. However, the Associated Press reported that the government has never said what the measures are and it is difficult to see signs that such measures have been implemented.

Economy

Ruble = 22.9/$1.00 (NY rate)

Ruble = 21.91/$1.00 (CB rate)

Ruble = 25.73/1 Euro (CB rate)

Ruble Falls Sharply Tuesday

· The ruble's drop sharply on Tuesday may be a foreboding sign for the currency's stability in 1999. Early Tuesday, Russia's Central Bank set the ruble rate at 20.7 to the dollar. By the afternoon, the ruble had fallen to 22.8 for deals to be completed today or 7.9 percent against the dollar. The ruble's exchange rate for today is set at 21.91. The currency has been sliding and inflation rising for the last five months. Deputy chief of the currency agency of Moskomprivatbank Vladimir ZAVERSHINSKY believes the dollar rate against the ruble will continue rising in 1999. It will exceed the 25 ruble mark in the second half of January, will reach 30 rubles to 40 rubles by mid-1999 and will be within 50 rubles to 100 rubles against the dollar in the second half of 1999. The volumes of ruble emission and possible ways of rescheduling Russia's payments on foreign debts will be the main factors forming the exchange rate in 1999, ZAVERSHINSKY believes. The Russian markets were closed the first four days of 1999, another four-day holiday weekend begins Thursday.

Banks To Open Euro Accounts

· A number of Russian banks are offering to open euro accounts with the Dresdner Bank for trading in that currency on the Moscow Interbank Currency Exchange (MICEX). The Dresdner Bank is the MICEX settlement bank for transactions in the euro and the German mark. It is still unclear when the trading in the

euro will begin, but is sure to be after January 10th. Deputy chief of the currency agency of Moskomprivatbank Vladimir ZAVERSHINSKY believes the euro will probably be the second preferred currency after US dollar for intensive trading sessions in Russia. He also noted that the intensity of trading in other European currencies will be lowering with the introduction of the euro. The euro rate will be rising against the dollar in medium-term perspective, ZAVERSHINSKY said. Moskomprivatbank will undoubtedly work with the euro and will be opening accounts in euro for its clients, he said. However, chief of Alpha-Bank currency department Igor VASSILIYEV believes that large volumes of trade in euro is not expected in Russia. He said Alpha-bank is going to work with the new currency, "just as other Russian banks."

The Central Bank has recommended to Russian commercial banks to convert foreign currencies to the euro without charging commission. The Central Bank said private and corporate deposits denominated in national currencies of the European Economic and Currency Union can be converted to euros on a voluntary basis. Individuals can open accounts in Russian banks for depositing savings and for clearance settlements. The Central Bank said that with the ecu abolished since January 1st, all citations of it in legal documents are replaced by the euro, and ecu-denominated funds are recalculated into euros.

Business

Russia To Build Railroad Bypassing Chechnya

· Head of the local government of the Stavropol Region Stanislav ILYASOV on Monday announced that plans for a railroad connecting Bydennovsk, Stavropol Region, and Kizlyar, Daghestan is on the list of key building projects in the Northern Caucasus. According to ILYASOV, the new 100 kilometers long railroad is expected to boost traffic between the Stavropol Region and Daghestan. It will also offer a shorter way for passenger and cargo trains going from Central Russia to the Caucasus region, by-passing Chechnya. The Russian government has permitted the North Caucasian Railway to spend part of the taxes due to be channeled into the federal budget on the project. ILYASOV believes the Budennovsk-Kizlyar railroad may be operational next year. The rebuilding and expansion of the

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highway connecting those two cities will also continue this year.

convicted. Several gangs were neutralized in the Crimea, Kiev, Donetsk, Sevastopol and Kharkov for embezzling budget funds, state and collective property with the assistance of corrupted officials.

South Caucasus & Central Asia

AES Corp. Takes Over Telasi Power Co.

· US-based AES Corp. Tuesday purchased a 75 percent stake in Georgia's Telasi Power Company. AES will take over the day-to-day running of the power grid in Tblisi. First deputy of state property minister Irma KAVTARADZE said that AES paid over $25 million for the shares and agreed to invest $84 million in the company over the next 10 years. AES representatives are holding talks with Georgian government officials with the aim of improving power supplies in the country. Georgia faces frequent blackouts and the under financed power utilities have been unsuccessful in attempts to raise to modernize facilities. Electricity to residents in the capital has been cut to 10 to 12 hours per day in the Summer and six to eight hours per day in the Winter. AES vice president Michael SCHOLE pledged to crack down on companies that have fallen behind in settlement of power bills and to guarantee 24 hour per day electricity, but at a charge for their service. An increase in rates is also predicted, which may be unaffordable for average Georgian citizens.

Russia Grants Armenia $8.6M In Aid

· The Russian government has decided to render humanitarian aid to Armenia in connection with the 10th anniversary of the devastating quake in Spitak. A total of $8.6 million has been allocated on instructions from Russian Prime Minister Yevgeny PRIMAKOV, the Governmental Information Department reported. The Russian Finance Ministry and Vnesheconombank have been instructed to hold negotiations with Armenia within a week on a possibility of a pre-term payment of part of the Armenian debt on Russian state credits and their interest. The negotiations are expected to result in signing of a related agreement.

Azeri Oil Exceeds Target

· The State Oil Company of Azerbaijan (Socar) announced on Tuesday that it had exceeded the oil production target for 1998. According to the information from the Socar press service, oil output for 1998

European Republics

Tele Danmark Holds Stakes In Lith. Cellular Cos.

· The Danish telecommunications services group, Tele Danmark, announced Tuesday the takeover of Millicom East Holding B.V., a Dutch holding company owning shares in the two Lithuanian cellular companies UAB Bite GSM and Comliet UAB. The purchase gives Tele Danmark 71.6 percent stake of Bite. The remaining shares are held by Lintel, a fully owned subsidiary of Lietuvos Telekomas. Bite controls 40 percent of the Lithuanian cellular market, while Comliet holds 10 percent. Tele Danmark also gained 49 percent stake of Comliet, a NMT 450 operator. The remaining shares are owned by Lietuvos Telekomas with 41 percent and Antenna UAB with 10 percent. Previously, Tele Danmark held 36 percent in Bite and 24.5 percent in Comliet. Tele Danmark is the principal provider of a full range of telecommunications services in Denmark and holds significant interests in a range of telecommunication companies across Northern and Continental Europe. The domestic activities include fixed-line and cellular telephone, data communications, Internet, leased lines, cable television and directory services, provided by the group's 16,000 employees.

Ukraine Secret Service Reports 1998 Results

· The Ukrainian Security Service Board on Tuesday held an expanded meeting chaired by Service chief Leonid DERKACH to review results of the service during 1998. According to released figures, Ukrainian counterintelligence service stopped the activity of 12 foreign agents and prevented 14 attempts of Ukrainian nationals to pass over political, scientific-technical and economic secrets to employees of foreign embassies. A total of 19 foreign citizens were expelled from Ukraine in 1998 for misdeeds and 14 foreigners were denied the right to enter the country. The Secret Service prevented over an 3 billion gryvnias economic damage to the country, returned over 200 million gryvnias to the budget, and brought back 13.6 million gryvnias worth of foreign currency from abroad. The Secret Service launched large-scale operations against corruption, organized crime and gangs. It instituted 2,436 criminal proceedings in cooperation with other law-enforcement bodies. A total of 958 persons were

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was 9.052 million tons, passing the target by approximately 52,000 tons. The growth rate for the production of hydrocarbons was 0.3 percent as against 1997. Oil exports from Azerbaijan increased in 1998 to reach 2.5 million tons, exceeding the figure for 1997 by almost 11 times. The State Oil Company accounts for 20 percent of oil exports, while the Azerbaijan International Operation Company (AIOC), which is developing three contract off-shore oil fields, accounts for the remaining 80 percent. Azeri oil, including the one produced at contract oil fields, is transported in one direction only, to Novorossiisk. In the first quarter of 1999, however, oil will also flow to Supsa, Georgia on the Black Sea coast. Azerbaijan failed to reach a gas production target set by a special program for ensuring the growth of natural gas output. Gas output in 1998 was 5.589 billion cubic meters falling short of the target by 600.5 million cubic meters, or a 9.7 percent decline against the planned figure. Gas production has been on the decline for about five years.

Kazakhs To Build Own Fleet of Oil Tankers

· The government of Kazakhstan has issued a resolution ordering the creation of a national sea shipping line Kazmortransflot. The company will be responsible for ensuring the effective operation of the sea port Aktau on the eastern coast of the Caspian Sea. With its own fleet of oil tankers, Kazakhstan will be able to transport oil to the world markets. After modernization of the port, tankers will be able to ship 6 million tons of oil. Head of the department of water transport for transportation Ministry Nikolai YUDIN said that the government has allocated $94 million to buy river-maritime vessels abroad. It has already received proposals from Brazil, Romania, and Russia. Kazakhstan can launch the construction of ships at the defense plant Zenit in Uralsk at a relatively low cost.

US Group Condemns Kazakh Elections

· Executive director for Human Rights Watch in Europe and Central Asia Holly CARTER in a letter to the Organization for Security and Cooperation in

Europe (OSCE) condemned the early presidential elections in Kazakhstan scheduled for January 10th. CARTER called on the OSCE, which has warned it will not recognize the results, to protest the election by postponing the establishment of a planned field office in Kazakhstan. In a strongly worded statement the Human Rights Watch said, "Coercion, threats, and the repression of opposition activities have characterized the presidential election campaign in Kazakhstan." The organization attacked President Nursultan NAZARBAYEV's decision to call for early elections from late 2000, saying it did not give opponents sufficient time to launch a serious challenge to the incumbent. Human Rights Watch criticized the banning of opponents from the election for minor administrative offenses, specifically the former prime minister Akezhan KAZHEGELDIN. The statement said, "President NAZARBAYEV likes to present himself as a dignified partner for Western leaders and investors. But the way his government has twisted arms in this campaign should leave no illusions about what kind of leader NAZARBAYEV really is." According to the organization, pressure has been placed on workers and students to sign petitions in support of NAZARBAYEV. The government has encroached on the freedom of speech, acted in a biased way when registering political support groups, and obstructed public demonstrations. OSCE mission expert Dimitry DIMITROV said that the OSCE will have full access to all documents needed to make a detailed analysis of the election. The OSCE plans to issue a brief official statement on January 11th and an in-depth analysis a month later. The mission consists of 15 foreigners.

Samsung To Repair Kyrgyz Roads

· A subdivision of the South Korean Samsung Corporation has won a contract to repair a 80-kilometer section of the automobile road which links the Kyrgyz capital Bishkek with the town of Osh. Samsung succeeded in outbidding several rivals from Turkey, Germany, Britain, and Italy for the $47 million contract. The building-and-repair work is scheduled to begin this Spring and end in 2002.

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

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