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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, February 3, 1999

elections will be held earlier than planned and he was confident that the left will then take over power in Russia. According to a survey of 81 region in Russia conducted by the Russian Social-Economic Agency, 13.6 percent of Russians asked would vote for the Communist Party in Parliamentary elections to be held later this year. This was the highest of all parties, with Fatherland Party earning 11.8 percent, and Yabloko Party 9.4 percent. Approximately, 10 percent of the voters were uncertain who to vote for.

Federation Council Approves PSA

· US investors welcome the decision of the Federation Council on Friday to endorse the law On Amendments to the Russian Federation's Legislative Acts Stemming from the Federal law on Product-Sharing Agreements. They are unanimous in the view that Russia has taken an important step toward attracting direct investment into its oil and gas industry. The Wall Street Journal reported that although conditions when oil prices are at their lowest, the new legislative act will not lead to the immediate flow of foreign capital to Russia. Immediately after the Russian State Duma endorsed the law in December, the biggest US petroleum company Exxon announced the conclusion of partnership agreements with two Russian firms developing oil deposits in Sakhalin. The adoption of the law by the Federation Council has been viewed as an achievement of the Cabinet of Yevgeny PRIMAKOV, who promised that the investment climate will improve in Russia. Previous Cabinets have been unable to persuade the parliament to

Russian Federation


CIA Director On Russia

· The Director of the Central Intelligence Agency George TENET described to the US congress his concerns surrounding Russia's relationship with Iran. He warned that Russia was backsliding on commitments to the US to curb the transfer of advanced missile technology to Iran. He said for years the CIA has viewed the Russia-Iran connection as one of the most worrisome channels in the world for the spread of advanced weapons, The New York Times reported. TENET testified that US sanctions imposed by the CLINTON administration are not working to restrict nuclear technology transfers. He pointed out that early last year there were signs of improvements, but it was not sustained. TENET said that as economic conditions continue to look bleak and Russian scientists' wage arrears increase, these nuclear scientists may sell their know-how to anyone, especially Iranians. The Director said, "Russia has continued to assist the Iranian missile effort in areas ranging from training to testing components. This assistance is continuing as we speak, and there is no doubt that it will play a crucial role in Iran's ability to develop more sophisticated and longer-range missiles." TENET pointed out that, "Politically, Russia is increasingly unpredictable, and the worsening economic situation affects all aspects of the Russian scene, as the desperate search for revenue streams is exacerbating a number of serious problems." Communist Party leader Gennady ZYUGANOV, speaking on Russian Television, echoed the CIA Director's comments saying that things in Russia are deteriorating. He said, if the government resorts to unconstitutional measures, the Communist Party will take every possible means available and will appeal to the armed forces and the citizens of Russia to stop it. ZYUGANOV added that it may so happen that the

Today's News Highlights


Unexim Misses Bond Payment

Wrigley Opens Gum Factory

Sidanko Faces Bankruptcy Case

European Republics

Coke Opens $100M Plant

BP Interested In Oil Route

South Caucasus & Central Asia

Georgia Cancels Tbilgas Sale

Uzbek Not To Renew CIS Treaty

EOC Telecom Mtg. In Islamabad




February 3, 1999

Intercon's Daily

amend the law On Agreements on Product-Sharing passed in 1995.

Yeltsin Reshuffles Kremlin Staff

· Russian President Boris YELTSIN today has signed a decree reshuffling the Kremlin staff. Personnel decisions were made on Tuesday in a meeting with chief of the presidential office Nikolai BORDYUZHA at the Kremlin. The decree appoints Sergei PRIKHODKO deputy chief of the presidential office and chief of the president's foreign policy agency. Alexei OGARYOV was appointed deputy secretary of the Russian Security Council and released from the post of deputy chief of the presidential office. YELTSIN relieved Sergei KRASAVCHENKO, Emil PAIN, Viktoria MITINA and Lyudmila PIKHOYA of the posts of advisers to the head of state in connection with reshuffling of the presidential staff.


Ruble = 22.92/$1.00 (NY rate)

Ruble = 23.12/$1.00 (CB rate)

Ruble = 26.2/1 euro (CB rate)

Unexim Misses Eurobond Payment

· Russia's largest commercial bank Uneximbank, controlled by oligarch and former deputy prime minister Vladimir POTANIN, has missed a $12.3 million payment on a $250 million eurobond due Monday. The bank has a 14-day grace period, which began Monday, to make the payment without being declared officially default. Uneximbank has scheduled meetings with investors on February 10th to discuss a restructuring of its debts. The failure to meet payment terms would make Uneximbank the first Russian institution to default on a Eurobond. This would be a worse signal to the market as to the state of Russia's institutions, than Uneximbank's failure to make a payment on a floating-rate note. Last week, Uneximbank also missed a $50 million coupon payment due on a floating-rate note. The bank admits that it may not be able to meet the floating-rate note payment within the grace period. Uneximbank, whose total estimated debt is $525 million, has shifted its banking assets into a new entity called Rosbank. The new entity has also received assets from rival banks Most and Menatep, the Financial Times reported. Uneximbank's offshore accounts have been frozen by Lehman Broth

ers Holding, Inc. which has instigated a legal battle against the bank over unpaid forward contracts. Uneximbank is said to owe as much as $2 billion, much to foreign investors, who purchased forward currency contracts through the bank.

Bank Vozrozhdeniye Reports 1998 Loss

· Russian Bank Vozrozhdeniye reported a 1998 loss of 84.6 million rubles, compared to a profit of 101.34 million rubles in 1997. The bank's assets rose already this year from 11.577 billion rubles to 18.341 billion rubles on January 1st. Net assets rose from 5.479 billion rubles to 7.852 billion rubles. Bank Vozrozhdeniye cites that the loss was due in part to the government default on 280 billion rubles of Treasury debt.


Wrigley Opens $70M Chewing Gum Factory

· William Wrigley Jr. Co, the maker of Wrigley's chewing gum announced that it has opened a $70 million factory in St. Petersburg. The new plant tested production in December and reached full production levels last month. The factory, to be officially opened in May, will initially use only imported supplies. However, Wrigley noted that it is seeking domestic suppliers, especially for packaging. According to a company statement, "Construction of the factory in St. Petersburg was dictated by the long-term interests of the company to the Russian market. The choice of the city was due to the good investment climate and the readiness of the city authorities to accept real sector investment." The Chicago-based company maker Wrigley's Spearmint, Doublemint, Juicy Fruit, Big Red, Winterfresh and Extra brand chewing gum.

Sidanko May Become Bankrupt

· Russia's fifth largest oil company, Sidanko announced on Friday that it is facing bankruptcy proceedings because of overdue loan payments. The case was brought against Sidanko by Beta-Eco. Hearings are scheduled to begin on March 2nd. Sidanko president's aide Oleg SAPOZHNIKOV said that, "bankruptcy is certainly an unpleasant development, however, if a court orders external administration procedures, Sidanko will do its best to use the advantages of the situation to the full and to postpone payments to lenders." Sidanko is controlled by powerful Vladimir POTANIN's Interros holding com

When you need to know it as it happens




February 3, 1999

Intercon's Daily

pany, which is struggling to keep Uneximbank solvent. The Moscow Times reported that Interros is now "bankrupting" Sidanko to set up a new company and has transferred titles of shares of its subsidiaries to offshore companies. The Russian newspaper also noted that this bankruptcy strategy is typical of Boris JORDAN, the controversial banker appointed head of Sidanko in November. Sidanko and Interros deny the allegations, RFE\RL Newsline reported.

Meanwhile, despite Sidanko's bankruptcy proceedings, the British Petroleum-Amoco oil giant Monday said it is not going to sell its stake in Sidanko. According to the spokesman, BP sees a possible restructuring of Sidanko as a good basis for BP's stronger position in Russia's oil sector. Many also speculate that the results of a meeting between company representatives and Prime Minister Yevgeny PRIMAKOV in Davos last week and Russia's new law on production sharing were behind BP's decision not to quit Russia. In 1997, BP bought a 10-percent stake in Sidanko for $570 million.

Slavneft, Onako Express Opposition To Merger

· Slavneft and Onako have expressed their opposition to a merger planned by the government to lump Rosneft, Slavneft, and Onako into the world's largest oil company, in terms of reserves. Onako said it would rather transfer its government-controlled majority stake to Orenburg Oblast. Slavneft President Vasily DUMA said following a Slavneft shareholders' meeting, that Slavneft would be best left untouched. The Moscow Times suggests that the Belarus Property Ministry, owner of a 10 percent stake in Slavneft, is likely to also oppose the merger.

the company's Coca Cola Beverages division that operates in Europe Neville ISDELL said at the opening ceremony that with the launch of the plant Coca Cola had become Ukraine's largest foreign investor. Ukrainian President Leonid KUCHMA said that Coca Cola's investment, "is a very good sign for all the others [investors], who have doubts whether to come to Ukraine or not. We will warmly meet such pioneers and will give them all our support." Rival Pepsi-Cola, once the leading soft drinks brand in both Russia and Ukraine, has seen its market share slip in both countries, and was forced to close several plants in Russia because of deteriorating market condition, after the economic crisis August.

BP Interested In Ukraine Oil Export Route

· BP Amoco has expressed interest in the feasibility of exporting Caspian oil from Baku via Ukraine's Odessa-Brody pipeline, as an alternative to the Baku-Ceyhan route, according to Chairman of the Ukrainian state committee for oil and gas Vladislav TARASHEVSKY. The possibility includes the transit of oil from the Baku-Supsa, then the loading of oil to tankers which would cross the Black Sea to Odessa. This option would avoid large oil tankers passing through the Bosphorus Straits, thereby alleviating Turkey's environmental concerns. The oil company's vice president Richard NILTON said BP Amoco is considering alternatives in view of the "political pressure" to choose the Baku-Ceyhan route.

Lithuania Protests Over Oil Cutoffs

· Lithuania has officially protested to Russia over the cuts of oil supplies to its key Mazeikiai oil refinery which brought the Mazeikiai Nafta Company to its knees, when the Lithuanian Foreign ministry handed over to Russian ambassador in Lithuania Konstantin MOZEL on Monday a formal letter. The only refinery in the Baltic region came to a standstill on Saturday when the Russian LUKoil company ceased supplies oil because of technical reasons. Lithuanian Government chancellor Kestutis CILINSKAS demanded an official explanations from Moscow and hopes that Russia, "will take a political decision to eliminate the technical reasons if they really exist." The Mazeikiai refinery, he said, signed long-term contracts with Russian companies and has been regularly paying for the oil. Until oil supplies resume, the refinery is loosing $250,000 daily. A LUKoil representative said that Lithuania's accusations are groundless. LUKoil,

European Republics

Coca Cola Opens $100M Plant In Ukraine

· Atlanta-based Coca-Cola Beverages has opened a $100 million bottling plant near Kiev, as part of its expansion strategy in Eastern Europe and the former Soviet Union. The plant covering 12,000 square meters is one of Coke's largest in Europe, with an annual capacity of up to 300 million liters of soft drinks. Coca Cola says opening the plant is an expression of the company's confidence in the market, despite economic difficulties in Ukraine and neighboring Russia. Over the past four years, Coca Cola has invested $270 million in Ukraine. Head of

When you need to know it as it happens




February 3, 1999

Intercon's Daily

which is responsible for coordinating oil supplies from Russia to Lithuania, states that it has delivered its quota of oil, 150,000 tons, to Lithuania for the first quarter. The LUKoil official said, "We can't ship anything over the quota established by the Fuel and Energy Ministry." Oleg RUMYANTSEV, spokesman for the Fuel and Energy Minister Sergei GENERALOV, said, "The ministry can limit oil supplies only in one case: if more than one third of all crude produced by Russia is exported through a single pipeline." The LUKoil representative stressed that several Russian companies are delivering oil to that country. "It would be utterly wrong to say, that the non-fulfillment by LUKoil of its commitments may hamper the whole of oil deliveries." He maintains, that the attempts to accuse LUKoil of taking advantage of the situation for exerting pressure on the Lithuanian side "are incorrect." The Russian Fuel and Energy Ministry today said that it is ready to approve increase crude supplies to Lithuania if oil companies are prepare to divert shipments from other destinations.

South Caucasus & Central Asia

Georgia Cancels Gas Sale Results

· Georgian Deputy State Property Minister David GELASHVILI on Tuesday announced the cancellation of the results of the international tender for a 76 percent stake in major natural gas distributor Tbilgas. He said, "The ministry has decided to annul the results of this tender because its winner, the Intergas Company, refused to pay $6,000,100 for the stake." He explained that Intergas, which is controlled by Georgian interests, refused to pay stating that it was not informed that Tbilgas had debts of about 38 million lari or $17.3 million to other enterprises. GELASHVILI said that the company assumed Tbilgas had restructured these debts. Intergas was the only bidder in the international tender for Tbilgas. Terms of the sale included a $30 million investment in Tbilgas over two years and the improvement of natural gas supplies to Georgia's capital. Georgia can not afford to import enough natural gas, petroleum, or electricity to sustain power usage.

Uzbek To Not To Renew CIS Security Treaty

· The Uzbek Foreign Ministry today announced that it will not renew the collective security treaty of the Commonwealth of Independent States (CIS) when it lapses in April. Foreign Minister Bakhodyr UMAROV said, "Uzbekistan is not prepared in the future to take part in the treaty on collective security of the CIS. Uzbekistan has informed the corresponding CIS structures of this well in advance." He said that Uzbekistan decision is based on its disagreements with Russia's policy on deepening the integration of the former Soviet republics. UMAROV also said that Tashkent opposes Russia's military activity in some parts of the commonwealth, namely supplying Armenia with S-300 air defense missile system and modern aircraft fighters. President Islam KARIMOV has often expressed that he opposes efforts to forcibly turn the CIS into a super-state, threatening the sovereignty of its members. Uzbekistan has been withdrawing its troops from CIS peacekeeping forces, particularly the withdraw in November of troops on the Tajikistan border. The security agreement was signed in Tashkent on May 15, 1992 by Russia, Kazakhstan, Kyrgyzstan, and Uzbekistan. Belarus, Azerbaijan, and Georgia joined the agreement later.

ECO Telecom Meeting In Islamabad

· The 11th meeting of Director Generals of Telecommunication of ECO (Economic Cooperation Organization) member countries is being held in Islamabad. Delegates from Kazakhstan, Kyrgyzstan, Azerbaijan, Tajikistan, Turkmenistan, Uzbekistan, Iran, Turkey, Afghanistan, and Pakistan will the exchange views on issues relating to cooperation in the field of joint production of telecommunication equipment and interconnection of national section of the member countries in Trans-Asia Optical Fiber Cable system project. Cooperation in the field of training and improvement of specialists for telecommunication sector and in the field of cellular mobile telecommunication will also be considered. The forum hopes to bring improvements to the telecommunications field and settle related bilateral issues.

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

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When you need to know it as it happens