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

Friday, January 8, 1999

underground plants. You can set up a factory in a week. It's easy to get bottles and spirits, it's big money."

Railway Ministry Reports Profits

· Russian Railways Minister Nikolai AKSYONENKO today in Kemerovo said that the Ministry closed 1998 in the black, gaining a profit. He emphasized that the Ministry has no debts to the Federal budget or the Pensions Fund. The railways sector management intends to take rather radical measures to raise the sector's efficiency, including downsizing the number of personnel. In 1998, approximately 320,000 workers in the railways network were operating redundant positions. Simultaneously, power and resource-saving technologies, up-to-date methods for the repair of electric and diesel locomotives, and other rolling stock are being introduced at all railway stations and depots. He also announced that Railway tariffs for the transportation of metals, bauxites and coal from Kemerovo Region to Ukraine and Japan. These benefits are part of an agreement signed today by the Railway Minister Nikolai AKSYONENKO and Kemerovo Region Governor Aman TULEYEV. Tariffs are reduced by 20 rubles to 40 rubles per ton of freight on average. The new tariffs will be in effect inside Russia for three months. AKSYONENKO said during the signing ceremony that these privileges will stimulate the advance of the region's industry and widen the scope of rail transportation.

Defense Ministry Hostel Catches Fire

· Late Wednesday night, a fire

Russian Federation

Politics

New Restrictions On Illegal Alcohol Production

· Russian President Boris YELTSIN Thursday signed a law amending and expanding state restrictions on the production and sale of alcohol. YELTSIN three months earlier proposed measures to tighten controls over the alcohol market and reduce illegal sales. On Wednesday, Prime Minister Yevgeny PRIMAKOV said illegal alcohol productions, spirit contraband and fraudulent labeling of alcohol are continuing despite the presidential and governmental decrees. He said that the reason for this includes the continued clandestine manufacture of raw materials, contraband of alcohol and the forging of markings on alcohol products. All this must stop, PRIMAKOV said. He criticized Cabinet officials for failing to implement the President's measures. He emphasized that officials will continue to crack down on the underground alcohol industry, although he admitted it is an uphill battle. PRIMAKOV called for monthly meetings of the commission in charge of enacting the state monopoly on alcohol production and sales. He said more rigorous control was dictated not only by the need to boost the budget's revenues but also by concern that, "people are poisoned because of production of left [unlicensed] bad quality products."

According to official estimates, poor controls over the alcohol market cost the government several billion dollars in lost revenues every year. During Soviet times, taxes on alcohol totaled 30 percent of state revenues, but now account for less than 2 percent. Vodka can be purchased legally for as little as 20 rubles a bottle, less than a dollar, and illegally it is even cheaper. Production manager of Kristall vodka factory in Moscow Sergei LUKASHUK told the Globe and Mail, "it is very easy to produce vodka in

Today's News Highlights

Russia

US Clinton Submits Steel Plan

Gov't Outlines 1999 Privatization

European Republics

Money Laundering Discovered

AdamkuS Appoints New Minister

South Caucasus & Central Asia

GIOC Marks Early Caspian Oil

Abkhazia Issues Clinton Stamp

$650M For Turkmen Loans

Kazakh Presidential Elections

Politics-Economics-Business

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Friday

January 8, 1999

Intercon's Daily

broke out in the five-story hostel of the Russian Defense Ministry's Department for Adjustments and Alignment on Mikhailovskaya Street in Moscow. One person died and another one was hospitalized with massive burns. A fire call came to the Fire Department control desk at 02.17, the duty officer for the emergency Ministry specified. One room and a corridor with an aggregate floor area of 50 square meters have been fully gutted out in the hostel. Twenty fire-fighting teams grappled with the fire, which was rated as being of 2nd category of gravity. The fire-fighters extinguished the fire by 03.24. The causes of the blaze are being investigated.

Businessman Brutally Murdered

· Alexander PEREPECHIN, the director of Khabarovsk's joint stock company Lada-Servis was killed near his house by a hitman Monday. PEREPECHIN was found with eight rounds of bullets pumped into his body. Police ascertained that a TT pistol was used. The regional interior directorate is investigating the murder, but they have no suspects. According to official statistics, over 500 murders were registered in the Primorye territory in 1998, a five percent increase from the 1997 figure.

Economy

Ruble = 23.39/$1.00 (NY rate)

Ruble = 21.91/$1.00 (CB rate)

Aug Sep Oct Nov Dec Jan

Clinton Submits Plan On Steel Imports

· US President Bill CLINTON has proposed a comprehensive plan to curb foreign steel dumping in

the United States, but rejected the industry's request for import restrictions on steel. US steel companies and trade unions have accused suppliers of dumping hot rolled steel from Russia, Brazil and Japan at below cost prices, driving down the price of competitive American steel. In his letter to the Congress on steel imports, President CLINTON said, "I am very concerned about the surge in low-priced steel imports into the United States and its impact on our companies, workers, and communities. Our steel industry and workers have taken difficult and commendable steps over the past two decades to make America's steel industry a world class competitor." He said that the goal of his plan is to ensure that US steel remains competitive and that steel workers have the opportunity to compete fairly. In the plan, the President pledged strong enforcement of unfair trade practices, anti-dumping measures, strong safeguards against import surges, a warning system to monitor trends, tax relief for the industry and assistance for steel workers to the forces of globalization. He noted that, "the solution to the financial crisis and the crisis facing our steel industry is not for us, or for any other nation, to go backward or turn inward. The solution is, instead, for America to continue to lead the world in stemming the current financial crisis and creating an open, rules-based trading system." CLINTON added that he will continue to monitor developments and to consult with industry and labor leaders. He said he will monitor developments in the steel industry, consult with experts and labor representatives, and consider additional actions if they are warranted.

The US steel industry said imports to the US surged 56 percent in the July-September quarter from a year earlier to 12.28 million tons, setting a new quarterly record. In November, the US Commerce Department issued an emergency ruling in favor of a dumping charge filed by the US industry against imports from Japan and Russia. Since then, Russia's rolled steel exports have not been selling in the US market. Active of steel sector protectionists predicted that penalty duties imposed on Russia could exceed 100 percent. Russia from the outset denied the dumping accusations and tried to stand up for interests of its steel mills, for many of which exports are a lifeline. According to Russia's steel union, a halt to exports to the US would wipe out 10,000 jobs at Cherepovets, Novolipetsk and Magnitogorsk steel mills.

When you need to know it as it happens

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January 8, 1999

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Business

Gov't Outlines Privatization For 1999

· Desperately in need of building revenues for its budget, the Russia government has drawn up a list of 11 companies to be totally or partially privatized in 1999. Primary among the tenders is the sale of a 25 percent stake in the telecommunications company Svyazinvest. This privatization, held over from last year due to Russia's financial and economic crises, is expected receive bids before July. The 25 percent stake is valued at 14 billion rubles ($640 million). The government also plans to sell another 2.5 percent stake in the gas monopoly Gazprom. German energy company Ruhrgas won a tender in December of a Gazprom 2.5 percent stake for $660 million. A nine percent stake of LUKoil has a starting price of 4 billion rubles ($193 million). A date for this tender has not been determined. Other share packages include Onako, Sovkomflot, Aeroflot, and the Moscow River Steam Navigation Company. The government hopes to raise badly need funds through these tenders to counter a budget deficit of more than 100 billion rubles. In 1998, the State Property Committee failed to meet its privatization targets and lure international investors to buy interests in state-held companies.

City Lobbies Gazprom For Headquarters

· Naberezhny Chelny in central European Russia has been devastated by Russia's economic financial and economic crises, causing high unemployment and low production. The city is headquarters to KamAZ, Russia's biggest truck maker, which has seen falling sales and cutbacks in 1998. Naberezhnye Chelny head of administration Rafgat ALTYNBAYEV said the 44 percent production slump in KamAZ and other problems require new economic programs to be adopted. Naberezhny Chelny is working with Russian gas monopoly Gazprom to form a cooperation. ALTYNBAYEV pointed out that Nabreezhny Chelny can be Gazprom's headquarters, since it possesses necessary goods and services including workers, engineers, production facilities, as well as up-to-date railway, aviation, river, and road networks. He hopes the city's 15,000 jobless people will be employed by Gazprom as shift workers.

underground network in Kiev that allegedly laundered money for almost 3,000 companies. Operating out of Kiev, it received money from interested companies through bank transfers and then channeled it through a number of fictitious companies for conversion into cash, the Associated Press reported. The fictitious companies received the money as payment for services they were allegedly providing. The scheme's primary purpose was to avoid taxation, which may companies complain are too high. The network's daily turnover totaled $292,000 and served companies, banks, and state agencies throughout Ukraine.

Adamkus Appoints New Transport Minister

· Lithuanian President Valdas ADAMKUS on Wednesday appointed Rimantas DIDZIOKAS, who is member of parliament from the ruling Conservative Party, to be the new Transport and Railways Minister. The post of Transport and Railways Minister has been vacant since mid-November 1998, when Algis ZVALIAUSKAS was sacked for abuse of office. ZVALIAUSKAS used a government plane to fly his friends to Sweden for hunting trip.

South Caucasus & Central Asia

Georgia Marks Early Azeri Oil With Celebration

· Georgian International Oil Corporation (GIOC) today celebrated receiving early Caspian oil from Azerbaijan via the Baku-Supsa oil pipeline reaching Georgia in Akhali Samgori, some 20 kilometers from the Georgian-Azeri border. The ceremony was attended by representatives from the Georgian International Oil Consortium, GIOC, as well as Georgian and Azeri government officials. Simultaneously in Baku, Azeri President Geidar ALIYEV and Henry KISSENGER marked the opening on the Azeri side with a ceremony. The 368-kilometer Georgian section of the oil pipeline, as well as oil terminals in the port of Supsa are completely ready for receiving oil. President of GIOC Gia CHANTURIA said, "It is a historic day. The people who did not believe in this project can see it with their own eyes." He then smeared some oil on his face and the faces of other oil executives and journalists. The pipeline will carry about 2.5 million tons of oil in 1999. This is the second pipeline carrying Caspian oil to the Black Sea Coast. The other route is north through Russia to Novorossiisk. The first tanker carrying early Caspian oil from the new pipeline is expected to leave Supsa in late March or early April. At that time, another

European Republics

Money Laundering Operation Discovered

· Ukrainian tax police have discovered a large

When you need to know it as it happens

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Intercon's Daily

ceremony will be held to be attended by heads of a number of states from the region and US Vice President Albert GORE.

Bill And Monica Stamps Issued By Abkhazia

· A new stamp issued from the rebel region of Georgia, Abkhazia, makes fun of the sex scandal surrounding US President Bill CLINTON and White House intern Monica LEWINSKY. The stamp shows CLINTON wearing a party hat and boxer shorts with red hearts, an unbuttoned shirt, holding a glass of champagne, and LEWINSKY dressed as a schoolgirl with a flower on it. The stamps have been on the market for approximately a month, according to Greg CARON, owner of www.coolstamps.com, an Internet Web site that displays the stamp to collectors. The website notes that the stamp is issued by Abkhazia, a new Russian country. He speculates that Abkhazia's motives were more financial than political reasons, since, "There's cartoons of President CLINTON in every newspaper of the world every day." CARON said the stamp has not yet been approved by the Universal Postal Union, therefore it is not authorized for international postage. He says collectors are snapping up the stamp panels, for approximately $5 each. Stamp experts estimate the issue could raise as much as $100,000 for Abkhazia. This is not the first time that the Abkhaz have attempted to declare themselves as an independent nation through the promotion of a clever issuance of a stamp. Previously, they issued a stamp which also grabbed international headlines.

Turkmen Reserves $650M For External Debt

· A senior Turkmen official said that the 1999 budget approved by parliament has earmarked 3.4 trillion manats ($650 million) to repay and service external debt. In line with the budget are revenues aimed at 20.562 trillion manats ($3.7 billion). Turkmenistan, has been borrowing under government guarantees. The official said that the loans are for long and medium terms with extended grace periods, but gave no other details or the total amount of Turkmenistan's foreign debt. Turkmenistan attracted a total of $5.4

billion in investments guaranteed by the government since independence in 1991. The bulk of the money has been invested in oil, gas, and textile industries as well as the agricultural, energy sector, and transportation infrastructure.

Kazakhs Vote For President On Sunday

· On Sunday, Kazakhstan's citizens will vote for President among four candidates: Serikbolsyn ABDILDIN, Engels GABBASOV, Gany KASYMOV, and incumbent Nursultan NAZARBAYEV. ABDILDIN is head of the Kazakh Communist Party. He has run a low-key campaign, due to lack of funds. He has openly criticized NAZARBAYEV and said the elections will not be fair, predicting ballot falsification. GABBASOV a member of the Senate has focused on ecological problems during his campaign. He strongly opposes use of sites in Kazakhstan as testing grounds for Russia's military. He even proposes closing down the Baikonur cosmodrome. KASYMOV, head of the State Customs Committee, has run a campaign with sensationalist methods, such as crushing a vase with his bear hands during a televised interview. He is calling for regional leaders to be elected by its people not appointed by the president. Many political analyst believe his candidacy is symbolic and that the campaign has been run in the shadows by NAZARBAYEV in an effort to show that Kazakhstan is holding free and fair elections. However, KASYMOV has attacked the government for failing to raise living standards despite major foreign investments and in pre-election polls is running second to the President. NAZARBAYEV has been President since 1991. He has been accused of threatening voters, encroaching on human rights and freedom of speech. It was his decision in October to hold this early election, which will elect a president for a term of seven years. It is expected that NAZARBAYEV will be elected; any other outcome would be a shock. The Central Electoral Commission has seven days to compile results. If no candidate receives more than 50 percent of the vote, a second vote will take place between the two leaders after the first round. The run-off election must take place within two months.

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

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