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

Monday, February 22, 1999

Russian Federation

Politics

Study Criticizes US Aid For Russian Scientists

· An independent study to be released today by the General Accounting Office on two US Department of Energy programs criticizes the CLINTON Administration's effort to stop the spread of nuclear, biological, and chemical weapons by helping to employ scientists on peaceful civilian projects, according to The New York Times, which received an advance copy of the report. The programs aim at keeping poorly paid Russian scientists working on peaceful projects and prevent them from accepting lucrative salaries from foreign governments or terrorist groups for their expertise. One of the program has enormous overhead and is poorly supervised. The report urges the Energy Department to make changes to its programs and refrain from expanding the program from three to ten nuclear cities during the next five years. At the end of 1998, the Energy Department had spent more than $63 million supporting more than 400 projects in Russia, Ukraine, Belarus, and Kazakhstan, 80 percent of them in Russia. The report also pointed out that only 37 percent of the money reached the designated scientific institutions in Russia and other former Soviet republics. Many scientists complained that much of the US aid was siphoned off not only by the American national labs, but in taxes and overhead charges by their own institute administrators, many of whom are still connected to Russia's security services and oppose cooperation with the US. The report concluded there is evidence that at least four institutes had, "contacts with countries of proliferation concern," including Iran, Libya, Pakistan, Sudan, and Syria. North Carolina's Senator Jesse HELMS said, "It is absolutely unacceptable for the CLINTON Administration to donate the US taxpayer's money to Russian scientists who spend their time working on

poison gas, biological agents and the new nuclear weapons designs for the Russian Government."

Russian-Iraqi Military Deals

· In addition to a $160 million deal reported last week for Russia to provide Iraq with MiG-29 fighters and air defense systems, Middle East sources say that Techmashimport, Vneshtechnika, and Mashinoimportinvest sold Iraq components needed for the manufacture of surface-to-surface missiles and navigation equipment for fighters and anti-aircraft missiles among other items. Insight magazine, published by The Washington Times Corp., citing Israeli sources also reported that Ramenskoe, which specializes in navigation and airflow systems for aircraft and missiles, was involved in arms transfers. These deliveries provide Iraqi leaders Saddam HUSSEIN with a greater chance of shooting down US and British aircraft patrolling the no-fly zones over Iraq. These deals also violate a UN embargo on trade with the Baghdad government. The agreements were arranged in 1998 by Raafat ABBAS, the director general of Al Azal Trading Co., Iraq's largest privately owned conglomerate. The Russian companies, identified by Insight all have intelligence linked histories. Western intelligence agencies have monitored several Iraqi businessmen on recent visits to Russia, who have been closely associated with military procurement schemes in the past.

Duma Adopts Resolution Against Berezovsky

· The Russian State Duma for the second time in three months in a vote of 314 to

Today's News Highlights

Russia

Yeltsin Signs Budget Into Law

VAZ Charged With Emezzlement

Aeroflot-British Airways Agmt.

European Republics

Lazarenko Held In US Airport

Lith. Custom Regulations Tighten

South Caucasus & Central Asia

Chevron, Primakvo, Ocalan Deal

Refugees Block Central Highway

Central Asia Fights Crisis Impact

Politics-Economics-Business

Page

Monday

February 22, 1999

Intercon's Daily

zero adopted a resolution on Friday calling on the Commonwealth of Independent States (CIS) to oust business tycoon Boris BEREZOVSKY as its executive secretary. The resolution said, "There is no longer a need to convince anybody that BEREZOVSKY is an odious person, and his holding posts in any state agencies or agencies of the Commonwealth of Independent States compromises these structures...The State Duma of the Federal Assembly proposes to the council of the heads of states of the Commonwealth of Independent States that B.A. BEREZOVSKY be relieved of the post of executive secretary." Earlier this month, BEREZOVSKY's businesses were raided in connection with media reports that he had installed a bugging system to eavesdrop on his political friends and foes, including President Boris YELTSIN and his family. BEREZOVSKY said that the resolution, "contradicts common sense and is of a destructive, rather than creative nature." It appears that this resolution is part of a two pronged attack against BEREZOVSKY politically and on a business level. This resolution, like the first, is likely to be ignored by CIS leaders.

Economy

Ruble = 22.84/$1.00 (NY rate)

Ruble = 22.84/$1.00 (CB rate)

Ruble = 25.2/1 euro (CB rate)

Yeltsin Signs 1999 Budget Into Law

· Russian President Boris YELTSIN today signed in to law the 1999 Federal Budget. The budget plans expenditures of 575 billion rubles ($25 billion) and revenues of 474 billion rubles ($22 billion), yielding a deficit of 2.53 percent of the gross domestic product. Economists are planning for inflation to reach 30 percent for its current 10 percent. The budget sets aside $9.5 billion to pay foreign creditors, who are owed $17.5 billion in 1999. Defense spending increased by 17 billion rubles ($744 million) to 107 billion rubles. The austere 1999 budget is designed to pull Russia out of its worst economic crisis since the 1991 Soviet collapse. The International Monetary Fund (IMF) and other international lenders have criticized the government's forecast as overly optimistic.

Unemployment in Russia nears 9 Million

· According to preliminary information released by the Russian State Statistics Committee today, un

employment in Russia grew 0.29 percent in January as compared to December, hitting 8,956,000 people, or 12.4 percent of the economically active population. The number of officially registered unemployed people increased 0.46 percent by the end of January, as compared to late December, making 1, 938,000 people. The economically active population is estimated as 72.2 million people, or about half of the entire population. Big and middle-size enterprises employed as of December 1998, 66 percent of the entire amount of the working force.

Business

AvtoVAZ Accused Of Embezzlement

· After months of investigating allegations of corruption at Russia's large automaker AvtoVAZ, legal authorities have stepped-up their actions since Prime Minister Yevgeny PRIMAKOV began his crack down on economic crimes. Russia's chief prosecutors on Friday opened a criminal case against AvtoVAZ, accusing its former and current directors of embezzlement, tax evasion and foreign exchange violations. No arrests have been made as yet. The proceedings will be conducted by the investigative committee at the Interior Ministry. AvtoVAZ produced almost 600,000 cars in 1998. The company has close ties with the local and central government; one director Vladimir KADANNIKOV served as first deputy prime minister in charge of the economy in 1996. It also has ties to business tycoon and Commonwealth of Independent States Executive Secretary Boris BEREZOVSKY, whose Logovaz business helps distribute AvtoVAZ's Lada cars. This is the latest in a series of government raids on businesses which have links to BEREZOVSKY. Other raids include Russia's Aeroflot Airlines, Sibneft Oil Company, and ORT Television channel. BEREZOVSKY, who also worked as a consultant to AvtoVAZ, has denied any wrongdoing. He has accused Russia's security services of targeting a politically motivated campaign against him, the Financial Times reported. BEREZOVSKY has boasted about his influence within the Kremlin and his close ties to Tatyana DYACHENKO, President Boris YELTSIN's daughter. With his shareholdings in ORT, BEREZOVSKY used the television channel to promote YELTSIN's campaign in 1996. It appears that PRIMAKOV is using the prosecutor's office to diminish BEREZOVSKY's influence ahead of parliamentary

When you need to know it as it happens

Politics-Economics-Business

Page

Monday

February 22, 1999

Intercon's Daily

elections later this year and the presidential election in the summer of 2000 or sooner.

Gazprom To Receive Blue Stream Funds

· Russian gas monopoly Gazprom's Deputy Chairman Sergei DUBININ said Gazprom will draw funds to finance the Blue Stream project, a Russia-Turkey gas pipeline on the Black Sea bottom, from the Italian state agency for guarantees of export credits and a group of Italian banks, primarily Medio Credito Centrale. The money has been granted on guarantee of export proceeds. The project is estimated at $2 billion. Gazprom will finance a considerable amount of works with its own money, but it needs $1 billion to $1.2 billion credit. The interest in the Blue Stream is very high, especially on the part of Turkey which is developing the most actively gas market in all of Europe. There is also an interest in building one more gas pipeline to Europe with an access to the Balkans, DUBININ said. No other details were given.

Generalov Supports Kirishi Oil Refinery

· The Russian Fuel and Energy Minister Sergei GENERALOV said at a meeting Sunday with Prime Minister Yevgeny PRIMAKOV and other leaders of St. Petersburg that the Ministry supports a project to reconstruct the Kirishi oil refinery in the Leningrad region. The reconstruction will raise the oil procession depth to 75 percent and bring 620 million rubles worth of additional revenues to budgets. It will require imports of technological equipment which does not have analogs in Russia and customs benefits for the oil refinery. Accompanying the Prime Minister during his visit are First Deputy Prime Minister Vadim GUSTOV, Deputy Prime Ministers Gennady KULIK and Valentina MATVIYENKO, Trade Minister Georgy GABUNIA, Regional Policy Minister Valery KIRPICHNIKOV, Transport Minister Sergei FRANK, Economics Minister Andrei SHAPOVALYUANTS and First Deputy Finance Minister Viktor KHRISTENKO. PRIMAKOV also held a working meeting with Finnish Prime Minister Pavo LIPPONEN.

Aeroflot-British Airways Sign Memorandum

· The British Airways company and Russia's Aeroflot signed in London a strategic memorandum on boosting cooperation last week. The document will pave the way for signing shortly a long-term agreement between the two companies. Talks between the two airlines had an extremely confidential

character and their content is an absolute commercial secret.

Aeroflot has announced a round-the-world service to mark the airline's 75th birthday. The Aeroflot service has been launched on an initial trial basis. The flight carried 90 paying passengers and a large press contingent on the inaugural east-bound flight linking Moscow, Bangkok, Vladivostok, San Francisco, Orlando, Miami, Dublin, London and Rome, returning to Moscow to complete the circle. Aeroflot says it will be the only airline to offer a round-the-world service, although several other airline alliances offer global tourist packages through code-share agreements.

European Republics

Ukraine Demands Extradition Of Lazarenko

· Spokesman for the Ukrainian Prosecutor General's office Viktor LAKIZYUK said that in line with an extradition agreement between Ukraine and the US, Kiev has asked for the extradition of former deputy and prime minister Pavlo LAZARENKO, who was detained at New York's John F. Kennedy Airport on Friday for entering the US without proper travel documents including a visa. Following a decision by Ukraine's Supreme Council stripping LAZARENKO of his parliamentary immunity, Ukrainian Prosecutor General Mykhalo POTEBENKO issued a warrant for his arrest. LAZARENKO has been charged with embezzling more than $2 million of state property and faces money-laundering charges in Switzerland for $4 million. The former Prime Minister was arrested by Swiss police in December for trying to enter Switzerland with a Panamanian passport. He was later indicted for money-laundering and then released on $3 million bail. A spokesman for the US Immigration and Naturalization Service (NIS) Rus BERGERON said, "We are aware that the Ukrainian government has issued an arrest warrant, but it is not relevant to this procedure," Agence France Presse reported. LAZARENKO is facing an expedited removal procedure. LAKIZYUK said, "I am absolutely sure that the US will reject LAZARENKO's plea and he will not be granted political shelter. Our charges are very serious."

Lithuania Toughens Custom Regulations

· The Lithuanian government resolution on tough

When you need to know it as it happens

Politics-Economics-Business

Page

Monday

February 22, 1999

Intercon's Daily

ening customs regulations for persons, mainly foreigners, who visit this Baltic republic entered into force on February 15th. Every person arriving in Lithuania for a period of up to three days will be required to have with him or her no less than 300 litas ($75) or a respective sum in foreign exchange currency, as against 100 litas ($25) previously. This requirement does not apply to persons who cross Lithuania in transit or who live and work in the border area. Restrictions on the import of petrol, lubricants, alcoholic drinks, and tobacco products, the cost of which is much lower in Russia, Belarus and a number of other countries than in Lithuania has been introduced with a view to curbing profiteering. For example, when a car crosses the Lithuanian border, it is banned to carry fuel in other containers except the amount available in the vehicle's petrol tank. A passenger entering Lithuania is allowed to have only one half-a-liter bottle of vodka, 100 cigarettes, and 0.5 kilograms of foodstuffs.

South Caucasus & Central Asia

Caspian Oil and Gas, Chevron, Primakov, Ocalan

· Kommersant Daily reported on Friday that Kurdish rebel leader Abdullah OCALAN applied for political asylum in Russian in 1998, and that his request was turned down as part of a broader plan devised by Russian Prime Minister Yevgeny PRIMAKOV. The RFE\RL Newsline reports that PRIMAKOV and Chevron's president Richard MATZKE at the World Economic Forum in Davos in January agreed that Moscow will not impede construction of the Baku-Ceyhan export pipeline for Azerbaijan's Caspian oil. In Return Kazakhstan's crude will be exported via the panned pipeline from Tengiz to Novorossiisk and Turkey will not prevent its passage in tankers through the Turkish straits.

Meanwhile, on Saturday, Iran reiterated its opposition to a gas pipeline through the Caspian Sea and criticized Turkmenistan for signing a pipeline-laying contract. Iranian Foreign Ministry spokesman Hamid Reza ASEFI said that Iran regards the decision of

Turkmenistan as contrary to the principles already declared by the littoral states. He said Iran has given high importance to the environment of the Caspian and believes that its environment is vulnerable and requires more attention by the littoral states. Any violation in this respect is unacceptable, he stressed.

Refugees Call For Withdraw Of Peacekeepers

· About 100 refugees from the Gali district, Abkhazia on Thursday blocked the central highway near the bridge across the Inguri River, dividing the Zugdidi and Gali districts. They continue to block traffic for motor vehicles of peacekeepers and international organizations, working in the conflict zone. The refugees are demanding that the Russian peacekeeping force be pulled out of the conflict zone, Georgia withdraw from the Commonwealth of Independent States (CIS), and expressed no-confidence in the UN organized mission in Georgia (UNOMIG). The refugees demanded consultations with representatives from Georgian authorities to examine the question on ensuring a safe return of refugees to their homes, "after Georgia restores its jurisdiction over the Abkhazian Autonomous Republic." They said their blockade across the highway and the Inguri River would remain in place until the start of the CIS summit. The protest action was organized by a group of refugees, living in the Zugdidi district and by the Gali Society. They have threatened to mine roads and approaches to the check point of peacekeepers. The Abkhaz side issued a statement condemning the protest and asked the Georgian Foreign Ministry to halt obstructions to the repatriation process.

Kazakhs, Uzbek, Kyrgyz To Fight Crisis Impact

· Kazakhstan, Uzbekistan and Kyrgyzstan Friday pledged to take coordinated action to alleviate the impact of the world financial crisis on their economies. The Presidents of the three countries, Nursultan NAZARBAYEV, Islam KARIMOV and Askar AKAYEV signed a memorandum on the coordinated action during their meeting in the capital of Kazakhstan, Astana. The three Central Asian countries decided to set up a joint working group to implement the measures.

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: $950.00 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 1999, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page