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, February 23, 1999

to solve it. Many believe that Russia doesn't have the money or the time to fix all related Y2K problems. US assistant secretary of defense for strategy and threat reduction Edward WARNER, who lead the US delegation, said that military officials had agreed to meet again in March to iron out the technical details of the Y2K problem.

Island Treaty By 2000 Uncertain

· Russian Foreign Minister Igor IVANOV met with Japanese Foreign Minister Masahiko KOMURA in Tokyo on Sunday and ruled out the possibility of concluding a World War II peace treaty with Japan by 2000. IVANOV said, "It is not possible." Japanese Prime Minister Keizo OBUCHI said Japan will continue trying to conclude a peace treaty with Russia by 2000, saying negotiations with Russia should be conducted "patiently, patiently and patiently." Chief Cabinet Secretary Hiromu NONAKA on Monday reiterated Japan's position that the territorial dispute over the islands of Etorofu, Kunashiri and Shikotan, and the Habomai group of islets, which were seized by Soviet troops at the end of World War II be resolved before the countries sign the peace treaty. Russia is reportedly proposing that the peace treaty only reaffirm commitments to resolving the territorial dispute, leaving its actual resolution to a separate pact. Japan has reportedly proposed giving Russia temporary administrative rights over the islands after the two countries draw a demarcation line between Etorofu, the most northerly of the islands, and Russia's Uruppu Island—effectively recognizing Japanese sover

Russian Federation

Politics

Pentagon Officials Help Russia With Y2K

· A team of Pentagon officials has urged Russia to establish a joint missile warning center before the end of the year to reduce the risk of a year 2000 glitch in the system setting off a false nuclear alert. Last week, Pentagon officials proposed a joint missile warning center staffed by both US and Russian officers near Moscow. The US would transmit data about missile launched form its satellites and land-based radars to that center and Russia's military command to help fill gaps in their early-warning system coverage and prevent a misidentified launch. This plan is a variant of a plan approved by US President Bill CLINTON and Russian President Boris YELTSIN in September.

The Russian Defense Ministry has been slow to take the Y2K problem seriously and consider all its ramifications. One US official said, "I don't think they have seriously looked at the problem and we are forcing them to look at the problem to see if it exists and how serious it is." In January, Lawrence GERSHWIN, a Central Intelligence Agency officer said, "The coincidence of widespread Y2K-related failures in the winter of 1999-2000 in Russia and Ukraine, with continuing economic problems, food shortages, and already difficult conditions for the population could have major humanitarian consequences." He stated that these consequences could include problems with computer-controlled power distribution systems, and nuclear power generating stations that could lead, "to reactor shutdowns, or improper power distribution resulting in loss of heat for indeterminate periods in the dead of winter in Russia." Head of Russia's state Communications Committee Alexander KRUPNOV said that Russia is working on the Y2K problem, but that it needs $2 billion to $3 billion

Today's News Highlights

Russia

US-Russia Reach Steel Agrmt

Gazprom-Iran Expand Relations

Politicians Go Hollywood

European Republics

Kiev To Receive $195M US Aid

South Caucasus & Central Asia

Giorgadze Located In Syria?

Georgia Reviews Security Pact

Azerbaijan Cuts Chevron Tariffs

Uzbek Arrests 30 Suspects

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eignty over them. The two countries have declined to disclose the two proposals, one made last April by then Prime Minister Ryutaro HASHIMOTO and a counterproposal last November by Russian President Boris YELTSIN. OBUCHI has asked Yeltsin to visit Japan sometime this spring. But uncertainties remain because of YELTSIN's health complications and domestic political problems.

Economy

Ruble = 22.84/$1.00 (NY rate)

Ruble = 22.8/$1.00 (CB rate)

Ruble = 25.19/1 euro (CB rate)

US-Russia Reach Steel Agreement

· US Commerce Secretary William DALEY announced Monday that the US and Russia have reached a tentative agreement on limiting Russian exports of steel to the US. Exports of hot-rolled steel would be curbed to 1996 levels, and other steel product to 1997 levels. In return, the US agreed to suspend an anti-dumping case against Russian steel imports. The Commerce Department made a preliminary determination in the dumping case against hot-rolled steel from Russia and set preliminary duties ranging from 71 percent to 218 percent. Those duties would be suspended when the deal becomes final. Under the agreement, the annual quota for Russian hot-rolled steel would be 750,000 tons per year, about 78 percent below 1998 import levels. The proposed suspension agreement also establishes a minimum price range of $255 to $280 per ton. In light of a dramatic surge of Russian hot-rolled steel imports in 1998, the agreement imposes a six-month moratorium on imports of hot-rolled steel products from Russia. The department said that as a result of the moratorium, Russian hot-rolled steel exports to the United States will be less than 345,000 tons in 1999, about 90 percent less than 1998 export levels. It said a final agreement could be signed by the end of March. American steel workers are dissatisfied with the deal and have threatened to press stricter legislation. Bethlehem Steel Corporation said the industry may even seek Federal court relief. The CLINTON Administration ruled on February 12 that Japan and Brazil had illegally dumped hot-rolled steel in the US at prices as much as 70 percent below normal, and said that it would impose enormous penalty tariffs on their products to protect the domestic steel industry. Russian steel production accounts

for 7 percent of its gross domestic product and is a huge source of hard currency.

First Deputy Prime Minister Yuri MASLYUKOV noted that the present antidumping drive of the US would affect Russian steel manufacturers along with other major steel exporters such as Japan, Brazil, and Ukraine. He said that Russia is facing a choice of either reducing the steel exports to the US or agreeing to a heavy increase in import duties which would make the whole thing unprofitable for the Russian manufacturers. DALEY reiterated at the press conference that the accords are not intended "to bring Russia to the knees." The accord does not protect Russian exporters from new dumping probes. The accords will be void if Russia joins the World Trade Organization, which would be its recognition as a country with a market economy. Russian-US inter-governmental steel talks were held in Rome by US Commerce officials Robert LARUSSA and Joseph PETRINI and Russian Trade officials Roald PISKOPPEL and Alexsei RUZHIN.

Business

Gazprom Hopes To Expand Iranian Operations

· This week, Russian gas monopoly Gazprom will submit a proposal to the Iranian government to develop two sections of the South Pars oil and gas field without its partner in the project France's Total. According to Gazprom's Deputy Chairman of the Board Valery REMIZOV, the proposal will include a feasibility study and a service contract. Necessary equipment will be supplied by Russian companies. The Iranian government is expected to make a decision on the project by early April. The contract on the development of the South Pars oil and gas field was signed by an international consortium, made up of Total, Gazprom, Malaysian Petronas and the National Iranian Oil Company in September 1997. Experts estimate prospected gas reserves of South Pars amount to 8.1 trillion cubic meters and value the project at $2 billion. The US initially strongly opposed the project. But, last Spring the US waived its trade sanctions on European Union companies doing business with Iran.

In addition, Gazprom drafted a feasibility study for the building of a major underground gas storage 40 kilometers from Teheran and is going to participate in the tender for its construction. The date of the

When you need to know it as it happens

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tender has been postponed several times because other potential participants were not prepared. Late in 1998, Gazprom and Iranian officials signed documents creating a joint drilling company.

Tuesday Tid-Bits

Russian Politicians Go Hollywood

· Krasnoyarsk Governor and top presidential contender Alexander LEBED will attend an Academy Awards Oscar Gala at the Beverly Hills Hotel, after Russian President Boris YELTSIN turned down the invitation. The Oscar-viewing party will benefit Martin SCORSESE's Film Foundation. The Governor, visiting the US West Coast for a trade conference, will be joined at the party by a delegation of roughly 50 filmmakers led by director Andrei KONCHALOFSKY. Prime Minister Yevgeny PRIMAKOV stepped out in the lime light when he attended the premiere of Nikita MIKHALKOV's latest film "The Barber of Seville," in the Kremlin State Palace staring Julia ORMOND. Some have viewed this patriotic movie as MIKHALOV's kick-off to a presidential campaign. He denies this. Also in attendance were Mikhail GORBACHEV, former prime minister Viktor CHERNOMYRDIN and Communist Party leader Gennady ZYUGANOV.

South Caucasus & Central Asia

Giorgadze Located In Syria?

· Georgian President Eduard SHEVARDNADZE harshly criticized Russia for its refusal to extradite a former Soviet KGB officer and Georgian security minister Igor GIORGADZE, who is accused by Tbilisi of organizing an attempt on the President's life. On Monday, one British publication reported that GIORGADZE has been allegedly staying in Syria since last October and that he was granted asylum there. This has been disputed as disinformation by knowledgeable sources in and out of Georgia. SHEVARDNADZE said, "Support for terrorists will backfire against those who render it...I wonder what Russia's reaction would be if Georgia harbored terrorists, bandits, and killers plotting to overthrow the Russian government." GIORGADZE fled to Moscow following the 1995 bombing of the President's motorcade. He is wanted under an Interpol warrant [A-641/12-1995], issued September 26, 1995. GIORGADZE has reportedly been traveling freely in Russia, despite repeated request by the Georgian government for his deportation. GIORGADZE continues to conduct anti-SHEVARDNADZE propaganda through support found in the Russian media. The Russian newspaper Zavtra, published a huge picture of GIORGADZE in a general's uniform, described as part of his pre-election campaign. GIORGADZE forecasted his victory with the article's title "The Future Is Ours," echoing posters found in Zugdidi on SHEVARD-NADZE's birthday, last month. GIORGADZE continued to talk about his destabilization plan for Georgia. SHEVARDNADZE also survived a February 1998 assassination attempt, when the presidential motorcade was attack by up to 20 gunmen firing grenades and automatic rifles. SHEVARDNADZE said that this issue has "casts a cloud" over relations with Russia. He also said that, "we are not going to sever relations with Russia because of GIORGADZE." Russia has several times denied that GIORGADZE is staying on its territory, however Russian journalists have been recently interviewing GIORGADZE in so called "unknown locations." One time this "unknown location" was broadcast on Russian Television. The Russian Embassy in Damascus declared that they had no information available as to whether GIORGADZE was in Syria. Georgia has no embassy in Damascus.

European Republics

US To Grant Ukraine $195M Aid

· US Secretary of State Madeleine ALBRIGHT told the US Congress that Ukraine has made "significant progress" in carrying out its economic reforms to warrant the release of $195 million in aid this year. Congress had intended that sum to be issued earlier, but had made its release conditional on ALBRIGHT's positive assessment of Ukraine's reform process and its efforts to deal with complaints by US investors. Ukraine is the third-largest recipient of US aid after Israel and Egypt. Ukrainian President Leonid KUCHMA welcomed the US decision saying that Washington, "understands the role of Ukraine in the region" and that the US-Ukrainian, "strategic partnership was not declared for the sake of empty words alone," RFE\RL Newsline reported. The release of US funds puts pressure on the International Monetary Fund (IMF) to disburse a $2.2 billion loan, which was suspended in November.

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Comment: According to informed sources, it is not true that GIORGADZE has been residing in Syria; he has traveled there from Moscow. Intercon sources report that GIORGADZE has been identified at a number of Russian military bases, including one in Armenia since October.

Austrian police on Monday arrested Rudiko GOGUADZE, a former Georgian criminal, on suspicion of involvement in the failed 1995 attempt to assassinate SHEVARDNADZE. GOGUADZE is also suspected of planning to assassinate SHEVARD-NADZE's nephew Nugzar.

Georgian To Withdraw From CIS Security Treaty

· Georgian President Eduard SHEVARDNADZE announced Monday that his country is close to withdrawing from the Tashkent Collective Security Treaty of the Commonwealth of Independent States (CIS). "Georgia refused to participate in the CIS Collective Security Treaty because it existed only on paper and there are no real results of its operation," the President said. Earlier this month Uzbekistan said it would not renew its membership in the Treaty, when it expires in May. It is expected that Azerbaijan will withdraw as well, but the final decision will be made by President Geidar ALIYEV after the CIS summit. SHEVARDNADZE said that Georgia will still participate in the CIS. He noted that, "upon completion of my visit to Japan [March 4 to 8] on the way back from Japan I shall make a stopover in Tashkent where I shall have a serious conversation with Uzbek President Islam KARIMOV and we shall attempt to work out a common stance on this problem." The Security Treaty was signed in Tashkent on May 15, 1992, by Russia, Kazakhstan, Kyrgyzstan and Uzbekistan. Belarus, Azerbaijan and Georgia joined the pact later. The next CIS meeting is scheduled to take place in March.

Azerbaijan Cuts Oil Transit Fees For Chevron

· Azerbaijan has cut oil transit fees from the Kazakh Tengiz oil field to the Black Sea for Chevron. President of Chevron's Overseas Richard MATZKE told

Azeri President Geidar ALIYEV on Monday that oil shipments which had been halted since the beginning of February will begin again shortly. Georgia and Azerbaijan both had to cut transit fees in order for Tengiz oil to flow. Georgia has already cut its transit fee from $7.75 to $5 per ton. Head of foreign relations at the Azeri State Shipping Company Ilgam MAMEDOV said Azerbaijan has lowered the tanker fee from $6 to $5.30 per ton and the loading fees from $0.50 to $0.35. Tariffs on the pipeline link from Dubendi to Ali-Bairamly were lowered from $3 to $1.50 and rail tariffs to the border of Georgia from $6 to $4 per ton of crude oil. Chevron sent approximately 2 million tons of Tengiz oil along this route in 1998. A Chevron official in Washington said that lower tariffs will enable Chevron to ship even more oil through the corridor. Azeri officials said that larger shipments would be necessary to maintain the low fees. "In order for theses lower tariffs to be profitable for us, Chevron has to transport three to four million tons a year." Chevron normally ships about 50,000 barrels per day of oil across the Caspian Sea to Baku and then by rail over Azerbaijan to Georgia's Black Sea port of Batumi.

Uzbek Arrest 30 Suspects In Bombings

· Uzbek President Islam KARIMOV today at a meeting with ambassadors from over 50 countries and representatives of the mass media said that the Uzbek Interior Ministry had arrested around 30 suspects on charges of involvement in the terrorist bombings in Tashkent on February 16th. The six bombs, which went off throughout the capital city, killed 16 and injured 130 people. He pointed out that the majority of those detained had been trained to carry out subversive acts in Chechnya and Afghanistan and some of them had already participated in armed conflicts in Afghanistan, Chechnya and neighboring Tajikistan. All of them belong to the Hezbollah and Wahabbis movement, KARIMOV said. "I have no doubt that they [the terrorists] had been acting not without help from the outside," the President said. KARIMOV also called for the arrest of key suspects, identified as Ulugbek and Dildora BOBODZHANOV.

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

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