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 8, 1999

Russian Federation

Politics

Yeltsin Defies Doctors' Orders; Flies To Jordan

· Defying doctors' orders, Russian President Boris YELTSIN flew to Amman, Jordan to pay tribute to King HUSSEIN of Jordan. HUSSEIN, long a symbol of stability in the Middle East and of prosperity to his country, died of cancer after a long battle with the disease. YELTSIN led the Russian delegation, which included Foreign Minister Igor IVANOV, leaving Prime Minister and Middle East expert Yevgeny PRIMAKOV out of the spotlight back at the Kremlin. YELTSIN described HUSSEIN as, "a wise and far-sighted statesman, who played a unique role not only in the political life of the Middle East, but also far outside it. Russia will always remember that it is King HUSSEIN who set the beginning of the friendly Russian-Jordanian relations." This is the first time in five months that YELTSIN has been capable of taking a foreign trip, and offered the world community a rare chance to assess the President's health.

YELTSIN had a brief meeting with US President Bill CLINTON in Amman on today, before returning to Russia. YELTSIN also exchanged opinions on world developments with heads of state and government of Italy, Japan, Greece, Turkey, Spain, as well as with Palestinian leader Yasser ARAFAT, UN Secretary General Kofi ANNAN and other political figures. CLINTON noted that despite reports about YELTSIN's illness the Russian President was, "looking very well." However, televised coverage of the funeral procession at the Raghadan Palace showed YELTSIN looking, frail, stiff, and favoring his left arm, similar to paralysis suffered by stroke victims. The President needed assistance to enter the Palace; he was helped by men on either side of him as he climbed the stairs. The Russian President's on going recovery from a quintuple heart bypass operation in

1996, pneumonia, bronchitis, and a bleeding ulcer has kept the president out of world politics. This year he has only worked at the Kremlin for three days. NTV Television network anchorman Yevgeny KISELYOV remarked that, "YELTSIN is reminding everyone that it is too early to write him off."

Luzhkov's Presidential Campaign Criticized

· Speaker of the Russian State Duma Gennady SELEZNYOV on Sunday in Veronjas South of Moscow criticized the presidential campaign of Moscow Mayor Yuri LUZHKOV. Russian Television channel One aired across the country, SELEZNYOV saying that if LUZHKOV was ever elected president of Russia he would be much worse than President Boris YELTSIN. He said, "It will be a nightmare for Russia." He described LUZHKOV as a man who lacks integrity and is dangerous. These comments are rather unusual to come from a political leader regarding the Mayor of Russia's capital city.

EU Food Aid Deliveries Suspended

· On Friday, Brussels announced that a decision had been made to suspend food deliveries from European Union countries to Russia for at least a month. Russian First Deputy Food and Agriculture Minister Vladimir SHCHERBAK believes that technical problems will be solved. He admitted that, "there are certain technical issues that have arisen between suppliers and us," noting that these were discussed on Friday with chiefs of the Moscow representative office to the European Commission. European Commis

Today's News Highlights

Russia

IMF Mission Leaves Moscow

Aeroflot Begins Loyalty Program

European Republics

Ukraine To Pay Goods For Gas

Evea Pank Declared Bankrupt

South Caucasus & Central Asia

McDonald's Opens In Tbilisi

Armetel Privatization Questioned

Oilfields Exploit Rights Revoked

New Tajik Political Party Formed

Politics-Economics-Business

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sion official Johan REINIERS said that deliveries would resume, pending dispute resolutions. REINIERS explained that Russian operators in charge of receiving the European food aid had come up with last minute demands that do not fit into the memorandum of understanding, signed by Russian Deputy Prime Minister Gennady KULIK during his visit to Brussels on January 20th. Russia's new demands concern sanitary and veterinary control by the European Union, quality of food packing and modes of transportation. Russia's permanent representative to the European Union Vasily LIKHACHYOV said that the commission is sending a delegation to Russia today to meet with KULIK and review the process by which proceeds are transferred to the Pension Fund.

On Saturday, the US Department of Agriculture said that Moscow has sent the US an incomplete plan for the distribution of US food aid to Russian regions. Moscow has not provided a plan of meat distribution, and the US administration cannot give a go-ahead to Russia's buying US pork and beef with soft credits. Russia's outlay of distribution of other foods has been submitted to the US administration, which allows starting deliveries this month. The US total package of humanitarian aid is three million tons, worth over $950 million.

Economy

Ruble = 23.12/$1.00 (NY rate)

Ruble = 23.05/$1.00 (CB rate)

IMF Mission Leaves Without Loan Commitments

· After failing to reach agreement in negotiations with Russian Finance Minister Mikhail ZADORNOV and First Deputy Prime Minister Yuri MASLYUKOV, the International Monetary Fund (IMF) mission left Moscow over the weekend without recommending the new credits Moscow needs to finance the deficit. The Mission was in Russia for two weeks to examine the economic program of the Russian government in order to decide on credit disbursement. Prime Minister Yevgeny PRIMAKOV has invited IMF Managing Director Michel CAMDESSUS to return next week to continue talks. The IMF said that it would only return after receiving new economic policy proposals. MASLYUKOV said that he would look forward to another visit by the IMF mission. After a meeting with World Bank representative in Russia Michael

CARTER, he said that the government will prepare answers to IMF remarks and criticisms. IMF Moscow representative Martin GILMAN said, "What we're looking for is a comprehensive policy package that the IMF and the international community can support and that would be convincing for the Russian population as well as the international community." Russian officials remain optimistic about receiving $4.6 billion from the IMF in April or May to pay back money owed to the Fund this year. One western diplomat told Reuters that new credits make little sense. "The IMF conditions were clearly not met and there's little sign they will be any time soon. The money probably would have disappeared again as rapidly as the last tranche." German Chancellor Gerhard SCHROEDER on Saturday at a security conference in Munich reproached the IMF for not giving enough attention to Russia's social and historical realities. He noted that Germany and Europe bare tremendous responsibility for the economic and political development of Russia. SCHROEDER stressed that German and European aid to Russia would be tied to concrete projects. In the mean time, MASLYUKOV expressed hope that the final agreement with the World Bank on cooperation in 1999 would be signed next week.

Business

Aeroflot To Launch Frequent-Flyer Program

· Russia' largest airline Aeroflot is ready to launch a frequent flyer loyalty program in March, after plans were postponed last August. The program is a move to raise the number of passengers and boost the quality of its services to match foreign rival carriers, the Financial Times reported. Today, Aeroflot plans to report preliminary results for 1998, which are expected to show net profit down more than half to $15.3 million. Aeroflot's expenditure for 1998 was unchanged at $1.4 billion, while gross profits fell from $47 million to $33 million. Tax charges decreased from $24.2 million to $17.3 million. At Aeroflot's board meeting last week, which reduced the number of management from 20 to 15 executives, a commercial plan for the next two years was approved. It predicts a further drop in turnover to $1.4 billion, offset by charges down to $1.3 billion. Aeroflot is 51 percent state-owned, the remainder of shares are owned by private individuals and employees. Last week, government prosecutors raided Aeroflot's headquarters seeking evidence for an economic corruption case.

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Promexport Reports Export Earnings

· According to preliminary results, Russia's federal state unitary enterprise Promexport exported $400 million worth of armaments and military hardware to 15 countries in 1998. Military experts say Promexport has been considerably expanding its positions on the world market of armaments. Orders to the company at present are estimated as making several times as much as last year's sum, a specialist emphasized. Promexport is engaged in an active marketing policy to strengthen its positions on the armaments market. It is going to widely feature its armaments and military hardware, which can be exported to any country, at an international arms show in Abu Dhabi to be held March 14th to 18th.

Yamburggazdobycha Faces Bankruptcy

· The largest production unit of Russian gas monopoly Gazprom, Yamburggazdobycha is facing a bankruptcy hearing in a dispute over unpaid promissory notes. Spokesman for Gazprom's chairman Rem VYAKHIREV said, "The lawsuit was filed by a company called Textilmash, which had no common business with Gazprom, nor Yamburggazdobycha," Reuters reported. Textilmash presented to a regional court promissory notes issued by Yamburggazdobycha that were not honored when presented for redemption. The spokesman declined to reveal the value of the notes, but said they were, "insignificant by Gazprom standards." Gazprom typically issues promissory notes to suppliers when it does not have enough cash on hand because of non-payments by consumers. Yamburggazdobycha accounts for approximately 180 billion cubic meters (bcm) of natural gas out of 553 bcm produced by Gazprom annually.

UES and Germany Reach Energy Agreement

· The deputy chairman of the United Energy Systems of Russia (UES) board Andrei RAPPOPORT on Wednesday announced that UES has reached an agreement in principle with the German power engineering company, Baiernverke, on the beginning of electric power deliveries to Bavaria in 1999. According to him, calculations of UES are based on the fact that the minimum price of energy deliveries to Germany will correspond to the present level of the price on the German energy market, two cents for one kilowatt. The agreement may develop over time as Germany stops using atomic power and closes all of its nuclear power plants.

European Republics

Ukraine Pays Turkmen Goods For Gas

· Ukraine's oil and gas company Neftegaz Ukrainy has agreed to deliver $360 million worth of goods to Turkmenistan in 1999 as payment for Turkmen gas supplies. A delivery contract was signed by Neftegaz Ukrainy head Igor BAKAI, Tukmenneftegaz, as the seller of Turkmen gas, and the Ministry of Trade and Foreign Economic Relations in Ashkhabad on Friday. The delivery contract is an important part of a larger contract on the purchase/sale of gas which was signed during Ukrainian President Leonid KUCHMA's visit to Turkmenistan in December. Turkmenistan will supply 20 billion cubic meters of gas to Ukraine in 1999. Over two billion cubic meters, of which, have already been delivered at a price of $36 per 1,000 cubic meters. Ukraine's goods supplies to an amount of $360 million will cover only half of the contract's value. Under the agreed-upon scheme of payment, 40 percent of gas supplies are to be paid by Ukraine in hard currency and 10 percent are covered from investment projects.

Evea Pank Declared Bankrupt

· The Tallinn City court on Friday declared Evea Pank bankrupt. Founded in 1989, Evea Pank is the Estonia's oldest commercial bank. Bank officials have already announced that they will appeal the decision. Evea Pank's license was revoked last October. Two US financial institutions, Swiss Credit & Savings Union Inc. and Morgan Nationwide Depository Inc. have said they are ready to buy a 67.8 percent stake in the bank for 5 million kroons (some $385,000), RFE\RL Newsline reported.

South Caucasus & Central Asia

Golden Arches Reach Georgia

· McDonald's Corporation, the world's largest fast food restaurant company, opened its first restaurant in the Republic of Georgia on Friday, bringing McDonald's global presence to 115 countries. President, Europe Group, McDonald's International Jim SKINNER said, "Since April, 1988, when we opened our first Central European restaurant, we have introduced McDonald's in 18 countries throughout the region and currently serve nearly one million customers per day in more than 500 restaurants." Georgia's McDonald's will operate as a joint-venture

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partnership between McDonald's Corporation and 100 percent Georgian-managed T&K Restaurants, Ltd. Their first restaurant in Tbilisi can service 235 customers at once. SKINNER noted that, "Thanks to the hard work and commitment of our local partners, we are able to create jobs for hundreds of Georgian residents and plan to invest more than $3 million in the Georgian market over the next three years."

Telecom Privatization Dispute In Armenia

· The Armenian Parliament is meeting today at the request of the opposition over the privatization of the telephone company Armentel. The parliamentary opposition demanded and was granted the Constitutional Court's probe into privatization of the telephone company Armentel with a selloff of a controlling stake in it to the Greek telecommunications company OTE. The opposition say that the privatization was illegal and urged for revision of a telecommunications law which it said is unconstitutional and allowing Armentel to become a monopolist operator of national telephone communications.

Meanwhile, Armenian President Robert KOCHARYAN said over the national television on Saturday he would dissolve the parliament if the appeal of the Prosecutor General for the arrest of former interior minister Vano SIRADEGYAN was rejected again. "I will never allow criminal-minded forces in Armenia to have any influence on the authorities: both those executive and the parliament," the President said. On January 26th, the parliament refused to permit the arrest of SIRADEGYAN accused by the Prosecutor General of organizing murders of people he disliked. It has been reported that SIRADEGYAN has left the country. KOCHARYAN stressed, "If the Prosecutor does not get the agreement of the parliament and the parliament is not dissolved, the criminal structures will have enough time to grow organized and be elected to the new parliament." If the parliament is dissolved, pre-term elections must be held after 30 days and no later than 40 days after dissolution.

Foreign Firms Lose Rights To Oilfields

· A spokesman for the Presidential Competent Organ for the Use of Hydrocarbons for the Turkmen government said that US Mobil, Britain's Cairn Energy and Texuna of Hong Kong have lost their exclusive rights to develop Serdar and Gaplan oilfields on the Turkmen shelf in the Caspian Sea. He said the companies had failed to begin talks within the time frame set by the government, but gave no other details. Last June, at the first round of international tenders for opening the Turkmen sector of the Caspian, Mobil won the right to exploit the Serdar field and a consortium including Cairn Energy and Texuna received rights to the Gaplan field. Ownership of the Serdar field is contested by Azerbaijan, which calls it Kyapaz. Serdar covers approximately 400 square kilometers and contains deposits of 50 million to 100 million tons of oil, while Gaplan is four times the area with 90 million tons of oil. The spokesman said that there will be no new tenders for the deposits, but that new deals would be worked out in direct talks with investors.

Justice and Development Party Formed In Tajik

· The Tajikistan Justice Ministry today registered the charter of one more political party, the Justice and Development Party. This is the ninth legitimate political organization in the country. According to its chairman Rakhmatullo ZOIROV, "the party will seek to achieve political leadership in Tajik society." He said the party, "will nominate a candidate at the 1999 presidential elections and hopes to win a number of seats in the Tajik parliament." ZOIROV stressed, that the Justice and Development Party is a, "party of ideologically orientated people whose work is based on eternal values, such as individual rights and freedoms, moral, cultural and material values, constitutional order and the integrity of the Tajik state...Our party is counting on intellectuals."

The Daily Report on Russia

and Former Soviet Union

will not be published February 15th

in observance of President's Day

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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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.

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