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, February 24, 1999

BORDYUZHA earlier this month admitted that Russia's controls against leaks of weapons technologies to Iran may be insufficient and need to be improved. SHARANSKY said that the tightening of export controls, "should be continued and even raised but that alone won't be enough." He said that Russian scientists who cooperate with Iran's weapons programs are working be cause it, "essentially has an economic cause." Cuts to Russia's science programs and low and late salaries have forced many Russian scientists to look for jobs abroad. The US and Israel have stated their commitment to involve these scientists in peaceful programs rather than letting them be "bought" by rogue nations for nuclear and technical know-how.

Russia-China To Strengthen Relations

· Russia and China on Tuesday signed five business deals at the end of the third session of the commission for preparing regular meetings between the premiers of both countries. The session, co-chaired by Chinese State Councilor WU Yi and Russian First Deputy Prime Minister Yuri MASLYUKOV, discussed strengthening bilateral cooperation in various fields. The deals include two contracts on real estate purchases, two on assembling of television sets in Russia from Chinese parts and components. They urged steps to reverse the situation whereby bilateral economic ties lag behind political ties, such as improvement of laws and standards, and observance of market laws. The two sides also exchanged views on cooperation in

Russian Federation

Politics

US Sanctions On Russian Institutes Finalized

· Economic sanctions imposed by the CLINTON Administration against 10 Russian institutes and enterprises for alleged sales of nuclear and missile technology to Iran were formally published in the Federal Register by the Treasury Department's Office of Foreign Assets Control. The sanctions bar direct or indirect US imports of goods, technology or services from the 10 institutes and enterprises. The Journal of Commerce reports that the sanctions for technology transfers to Iran have been an increasing source of friction between the US and Russia, particularly since the Yevgeny PRIMAKOV was appointed Prime Minister. Despite early progress of imposing restrictions on exporting dual use technologies, the PRIMAKOV government cleared the accused research centers and trading companies of any wrongdoing. These entities include the following: Baltic State Technical University, Europalace 2000, Glavkosmos, Grafit (State Scientific Research Institute of Graphite), INOR Scientific Center, Moso Co., Polyus Scientific Production Association, D. Mendeleyev University of Chemical Technology of Russia, Moscow Aviation Institute, and divisions of the Scientific Research and Design Institute of Power Technology.The Treasury Department's announcement makes no mention of Iran and does not specify the goods or technologies transferred to Iran.

Last year with Russian technology, Iran launched a test flight of a missile, capable of reaching Israel. Israeli Trade and Industry Minister Natan SHARANSKY, visiting Russia on Tuesday, said that Israel will work to involve Russia's underpaid scientists in joint research projects, so that they will not sell their skills to Iran's weapons programs. Russia's security chief and presidential chief off staff Nikolai

Today's News Highlights

Russia

World Bank Initials Coal Loan

G-7 Discuss Russian Economy

LUKoil-Hellenic Petro Sign Agmt

European Republics

Ukraine Closes Four Banks

Ukraine Reviews Privatization

South Caucasus & Central Asia

Rus-Georgian Interior Ministers

Azeri-Turkmen Disputed Fields

Politics-Economics-Business

Page

Wednesday

February 24, 1999

Intercon's Daily

oil, natural gas, and high technologies. The parties will continue to discuss investment projects, including Chinese capital investments in the economy of the Russian capital. They are also expected to touch on the projects for the creation of free trade zones on the border between the two countries and for direct cooperation between their regions.

China's Premier ZHU Rongji arrived in Moscow today for a official four-day visit. Russian President Boris YELTSIN will meet the Chinese head of government in the Kremlin on Thursday before large scale talks begin between Russian Prime Minister Yevgeny PRIMAKOV and ZHU as part of the fourth annual meeting of heads of governments. These talks will focus on trade and economic cooperation, intellectual property rights, oil and gas, and other bilateral and international issues. China hopes that ZHU's visit will further enrich the relations of strategic partnership between the two countries. ZHU and PRIMAKOV are expected to sign 11 agreements on Thursday. PRIMAKOV in an interview to the Jingji Ribao newspaper said, "The state of the Russian-Chinese ties is not only a major achievement of the two states, but also an important factor of the current world order, one of the key elements ensuring its stability and evolution towards multi-polarity." According to First Deputy Prime Minister Yuri MASLYUKOV, these agreements will include three intergovernmental agreements, four agreements on regional cooperation, and four agreements between Russian and Chinese companies dealing with oil, gas, and electricity production. "Cooperation in the sphere of energy production is the main line in the development of our relations," MASLYUKOV emphasized. ZHU will also meet with Chairman of the Federation Council Yegor STROYEV. Friday, ZHU will fly to St. Petersburg, before returning to China.

Economy

Ruble = 22.8/$1.00 (NY rate)

Ruble = 22.82/$1.00 (CB rate)

Ruble = 25.05/1 euro (CB rate)

Court Rules On Banks' Contracts

· The Russian Constitutional Court has ruled that banks can not introduce unilateral changes to their contracts with depositors during the initial term of the contracts' validity. Vice President of the Association of Russian Banks Vyacheslav ZAKHAROV believes

this will lead to shorter terms of contracts. According to ZAKHAROV, the problem had been raised long ago, and the Court's rulings had been most likely based on the Russian Civil Code provisions. He further noted that the Court was fair to depositors in its judgment. The Russian Savings Bank Sberbank refused to comment on the decision before it was officially published. Sberbank has accumulated about 80 percent of the Russian population's deposits and has practiced unilateral changes to the terms and conditions of the bank contracts. Representatives of the Mostbank and Avtobank press services stated that their banks had never introduced one-sided changes to the contracts with their depositors.

World Bank and Russia Initials Coal Loan

· Fuel and Energy Minister Sergei GENERALOV said Russia and the World Bank Friday initialed an agreement for a $400 million coal loan. Under the deal, which will be signed formally February 26th, the World Bank will divide the loan into four tranches, two for social projects and two for privatization. The first social installment may be received at the end of April or the beginning of May, and the first privatization installment may be ready at the end of June or the beginning of July, he said. Most of the money will be spent to enlarge financing of the coal mining industry and double the budget allocations of 5.8 million rubles. As soon as the World Bank Board of Directors approves the agreement, it will be possible for Russia to get a $400 million coal loan from Japan, GENERALOV said.

G-7 And Russia Discuss World Economy

· Russian Finance Minister Mikhail ZADORNOV said that the G-7 Finance Ministers plus Russia and Central Bank representatives in Bonn on Sunday discussed ways to ease the Russian debt burden. He said that there is, "No doubt, one can say that we gained understanding...There is also understanding at the bilateral negotiations with the Germans, Italians and French in Moscow." ZADORNOV did not confirm press reports saying that the next round of negotiations between the Russian Ministry of Finance and the London Club will take place on March 5th in London to discuss the Russian foreign debt. First Deputy Prime Minister Yuri MASLYUKOV pointed out that, "We were invited to Bonn not to elaborate any decisions, and we did not ask for money—the essence of our pronouncements was to give the meeting participants a clear picture of the

When you need to know it as it happens

Politics-Economics-Business

Page

Wednesday

February 24, 1999

Intercon's Daily

Russian standing." Central Bank Governor Viktor GERASHCHENKO said, "no new credits were discussed in Bonn." ZADORNOV said, "This time the attention was given to the most topical problems in world economics, including the position of the financial system after the introduction of the euro and variants to upkeep the equilibrium of exchange rates of the American dollar, the Japanese yen and the euro in the uneasy financial situation."

Business

LUKoil, Greek Hellenic Petro Plan JV

· Russian oil company LUKoil's president Vagit ALEKPEROV and Greek Hellenic Petroleum president Eleftherios TZELLAS Tuesday signed a cooperation agreement to form a joint venture company. The new oil company will combine the interests of both sides in exploration, production, refining, and sales of crude oil and oil products. TZELLAS said, "Bringing together the combined experience, opportunities, and assets of LUKoil in oil production in Russia and the experience, opportunities, and assets of Hellenic Petroleum in Greece will increase the efficiency of each company." Both sides agreed to work on a joint project in south east Europe and the Black Sea region. It has plans to supply oil to Greek refineries and market products both in Greece and in neighboring countries. ALEKPEROV said, "Greece imports around one million tons of Russian oil per year and we will consider this figure as a benchmark." He expressed interest in boosting LUKoil's presence in the Balkan region. The Hellenic Petroleum was formed in 1998 on a basis of Greek state oil companies. It owns 50 percent of the Greek processing capacities with a total output of 9.3 million tons per year.

Space and Arms Export Co. To Sign Agreement

· Director-General Grigory RAPOTA of the Russian state-run arms export company Rosvooruzheniye and Director-General Yuri KOPTEV of the Russian Space Agency today are expected to sign an agreement on strategic cooperation. The agreement is aimed at consolidating the interaction between the two organizations to improve the use of the scientific, technical and production potential of Russia's space industry and promote cooperation with foreign countries in the field of space engineered supplies. The agreement hopes to improve marketing studies taking into account Russia's federal space program and

commitments. The document will ensure the implementation of the Russian export control and licensing legislation in the field. The cooperation will work to develop attractive projects for foreign investors.

European Republics

Ukraine's CB Closes Four Private Banks

· Ukraine's Central Bank today closed four small private banks and warned that operating licenses could be revoked for dozen more banks. The closed banks include Kiev Popular Bank, Stolychny, Shakhteconombank, and the Odessa bank Misto. The Central Bank did not release specific reasons as to why these banks were closed; they only commented that the closures were "individual." Central Bank deputy chief Alexander KYREEV said that some 40 banks could lose their licenses because of a government order requiring the banks to raise their capital limits by March 31st. He added that 13 of the problematic banks already have met the new requirements but haven't registered the changes, but said that nearly half of the remaining banks may not be able to fulfill the order. KYREEV said, "The economy is in a sorrowful state and it's very difficult today to develop banking activities. It is hard to expect the banks to be profitable. There'll be a struggle for survival."

Ukraine To Sign New Privatization Decree

· Ukrainian President Leonid KUCHMA is reviewing a new version of the 1999 privatization program without some elements that were earlier rejected by the parliament. Head of the economic department of KUCHMA's administration Yevhen GRYHORENKO said the new decree and a parallel law still includes allowance for shares to be sold for OVDP treasury bills as had earlier been planned. Parliament vetoed the President's earlier decree on February 5th, along with the corresponding law after twice rejecting an earlier draft program submitted by the government. A presidential decree comes into force 30-days after being signed unless legislators veto it or pass an alternative law on the issue. The International Monetary Fund (IMF) has set privatization of the agro-industrial and energy enterprises as a conditions for re-starting a $2.2 billion Extended Fund Facility. The 1998 privatization program raised one third of the revenues planned from sell-offs, in large part because of the failure of many auctions to attract bids.

When you need to know it as it happens

Politics-Economics-Business

Page

Wednesday

February 24, 1999

Intercon's Daily

South Caucasus & Central Asia

Rus, Georgian Interior Ministries Sign Protocol

· Russian and Georgian Interior Ministers Sergei STEPASHIN and Kakha TARGAMADZE signed a protocol in Moscow today on cooperation between their ministries for 1999-2000. The Russian Minister said they also signed an order on setting up a joint board, which will hold its first meeting in Tbilisi in the Spring. STEPASHIN and TARGAMADZE discussed a wide range of issues, in particular cooperation to arrest criminals and extradite them to their native country. The ministers agreed on cooperation of Russian and Georgian police in the North Caucasus region. During the talks, the ministers discussed searching for Georgian state criminals who are hiding in Russia. Recently, a person was arrested in Russia on suspicion of being involved in a series of notorious crimes, including the attempts on the life of Georgian President Eduard SHEVARDNADZE. STEPASHIN said he would apply to the Russian General Prosecutor's office for a sanction to deport the arrested man to Georgia. This man has not been identified. Georgia has persistently called for the extradition of former Georgian security minister Igor GIORGADZE, who the British press reported to be in Syria. One French publication claimed that Syrian President Hafez ASSAD granted GIORGADZE asylum in October 1998 at the request of the Russian Federal Security Service (FSB). The Georgian embassy in Egypt and the Russian embassy in Damascus both said they can neither confirm nor deny reports of GIORGADZE's aslyum in Syria. More interestingly, in an interview in the British Sunday Telegraph, GIORGADZE's father said that he does not know his son's whereabouts, but later said, "I believe Igor is either in Georgia or not far from it." Intercon sources report that GIORGADZE has been identified at a number of Russian military bases, including one in Armenia. Panteleimon GIORGADZE, chairman of the Georgian Communist Party, incredulously described his son's political views as, "liberal, contemporary, and close to social democracy." He did not exclude the possibility that his some

might run for a seat in the Georgian parliament. One regional expert commented, "I don't know many social democrats who have attempted to assassinate a duly elected president of a nation, are wanted on an Interpol warrant, and have the audacity to suggest their interest to run for political office while outside the country." Obviously, Georgia's Communist Party chief has a different definition of a social democrat than the rest of the world.

Morningstar To Mediate Azeri-Turkmen Dispute

· Special adviser to the US President and the US Secretary of State on Caspian energy Richard MORNINGSTAR arrived in Baku to discuss US mediation in the dispute between Azerbaijan and Turkmenistan over sea borders. Morningstar noted that US Energy Secretary Bill RICHARDSON is due to visit Baku in June 1999 to witness the signing by Azerbaijan and Turkmenistan of an agreement on the delimitation of their sear border. Disagreements between the two countries first occurred in 1997 when Ashkhabad laid claims on the Azeri and Chirag deposits located in the Caspian Sea some 180 kilometers east of Baku. Together with the Gyuneshli deposit, they make up the so-called contract area developed since 1994 by Azerbaijan and the Azerbaijan International Operation Company (AIOC) which involves 11 companies from six countries. In August 1997, Turkmenistan also laid claims on the Kyapaz deposit, which it calls Serdar. Negotiations on the delimitation of the sea border between the two countries have been going on for about two years. Azerbaijan and Turkmenistan thus far have only agreed to recognize that each of the five littoral states should have its own sector in the Caspian Sea. MORNINGSTAR and Azeri President Geidar ALIYEV discussed construction of a trans-Caspian pipeline from Turkmenistan to Turkey, through Azerbaijan and Georgia. MORNINGSTAR said that if Azerbaijan and Turkmenistan reach an agreement and financial corporations agree that this project poses no threat to the Caspian Sea ecology, the pipeline will be built. The pipeline has been tentatively valued at $3 billion.

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