DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, March 11, 1999

believe that dismissed Commonwealth of Independent States executive secretary BEREZOVSKY may have staged SHPIGUN's abduction with the intention of mediating his release and thereby rehabilitating his political standing.

Yeltsin Requests Meeting With Yavlinsky

· At the request of Russian President Boris YELTSIN, liberal economist and leader of the Yabloko party in the Russian State Duma Girgory YAVLINSKY met with YELTSIN at his Central Clinical hospital bedside today. The unscheduled meeting fuels rumors that YELTSIN is considering a major government reshuffle, whereby YAVLINSKY could replace Prime Minister Yevgeny PRIMAKOV. YAVLINSKY denied that he and the President had discussed personnel changes. He said the conversation, "was about life." YELTSIN is still recovering from complications with a bleeding ulcer and his treatment may last two more weeks.

Economy

Ruble = 22.98/$1.00 (NY rate)

Ruble = 23.04/$1.00 (CB rate)

Sberbank Profits Up, Vnesheconombank Down

· President and board chairman of Russia's savings bank Sberbank Andrei KAZMIN announced that the profits of Sberbank in 1998 exceeded 15 billion rubles ($652 million). KAZMIN said that the bank's profit grew more than three times 1997 profit figures. The

Russian Federation

Politics

Rus-Chechnya To Cooperate In Shpigun Search

· Following a Russian Security Council meeting, attended by Federation Council chairman Yegor STROYEV, Duma speaker Gennady SELEZNYOV, Deputy Prime Minister Gennady KULIK, presidential first deputy chief of staff Oleg SYSUYEV, Interior Minister Sergei STEPASHIN, Defense Minister Igor SERGEYEV, Foreign Minister Igor IVANOV and other high- ranking officials, Prime Minister Yevgeny PRIMAKOV, who led the meeting, said that Russia has ruled out any immediate military action against Chechnya in retaliation for the kidnapping of Interior Ministry representative Major General Gennady SHPIGUN, at Grozny's airport last Friday. President Boris YELTSIN did not attend the meeting and was briefed on the decisions made there. Although PRIMAKOV noted that the Russian leadership had "tightened security on the administrative border with Chechnya and on the planes," he could not confirm that, "army units are being moved to the administrative border with Chechnya and preparations are under way for air strikes on Chechnya." He noted that Russia's special services and Interior Ministry are cooperating with corresponding Chechen structures accountable to Chechen President Aslan MASKHADOV to secure the release of SHPIGUN. PRIMAKOV said, "We will also take unilateral steps if necessary, but of course in full compliance with the law." SERGEYEV confirmed that no decision to use force against Chechnya had been considered, despite tough rhetoric earlier this week. PRIMAKOV said he was willing to meet with MASKHADOV on the situation, but no date, place, or agenda has been specified. In a story which appears directed at further discrediting Boris BEREZOVSKY, Moskovskii Komsomolets claimed that Russian security officials

Today's News Highlights

Russia

Tax Revenues Exceed Target

UES Prepared To Cut Supplies

European Republics

Ukraine To lift Restrictions?

Ericsson Signs Network Contract

South Caucasus & Central Asia

Georgian Unemployment Figures

Afghan Peace Talks In Turkmen

Shell, MOL To Study Caspian Oil

Kyrgyz Committed To Economy

Politics-Economics-Business

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Thursday

March 11, 1999

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bank's capital has grown by 1.5 times. The bank paid 8.5 billion rubles in taxes from its profits, which is six times more than in 1997. Sberbank paid 11 billion rubles in taxes, securing itself number two slot after gas monopoly Gazprom, KAZMIN said.

Meanwhile, Russia's Vnesheconombank, the government's payment agent for sovereign foreign debts, said that its profits fell 11.4 percent from 281.594 million in 1997 to 249.56 million rubles. The bank did not give a reason for this fall. Vnesheconombank's capital, however, increased 3 percent from 3.256 billion rubles to 3.351 billion rubles. In 1998, Vnesheconombank paid a total of $6.8 billion to foreign lenders, of which $3.3 billion was loan principal, while interest payments totaled $3.5 billion. The bank received a total of $910 million in debt payments from Vietnam and Cuba.

Tax Revenues In Feb. Exceed 15.6 Billion Rubles

· Russian Tax Minister Georgy BOOS on Wednesday announced that the Tax Ministry collected more than 15.6 billion rubles in tax payments for February 1999, including payments to the Federal Road Fund. He said that about 14.9 billion rubles were collected in cash. In January 1999, tax revenues stood at 20.35 billion rubles, including 18.78 billion rubles in cash. The Finance Ministry has assigned an additional tax collection quota for the Tax Ministry in the first half of 1999 and set it at 17.5 billion rubles. Projected tax revenues for March thus far are 60 percent up from the February level, BOOS said.

Foreign Trade Up, Foreign Investment Down

· Russia's Economics Ministry in its report Current Situation in Russian Economy (January 1999) and Prognostic Tendencies For Nearest Future (January-March 1999) presented figures which showed a positive foreign trade balance that amounted to $2.1 billion in January 1999. The report says Russian imports totaled $2.8 billion in January which is a 50 percent decline compared to January 1998. Imports from non-Commonwealth of Independent States (CIS) countries fell 54.5 percent ($2 billion). The positive trade balance amounted to $2.1 billion in January 1999 against $300 million in January 1998, including $1.8 billion against $200 million respectively in deals with non-CIS countries, the report underlined. Prices for imported ready-made goods continue to decrease, the report said. Prices fell mostly for computer hardware, electronic equipment

which was caused by growing competition among exporters from South-East Asia.

The total volume of foreign investments in the Russian economy decreased by 4.5 percent in 1998 and amounted to $11.8 billion, according to the Russian Statistics Committee. In the total volume of foreign investments, direct investments made up 28.6 percent, portfolio investments 1.6 percent and others (trade loans, loans granted by international finance organizations, loans granted by foreign governments under the Russian government guarantee, bank accounts, etc.) 69.8 percent. Direct and portfolio investments went down, while other investments added 31 percent. The country which invested the most in the Russian economy was Germany ($2.8 billion), followed by the USA ($2.2 billion), the UK ($1.6 billion), France ($1.5 billion), Cyprus ($9 million), the Netherlands ($9 million), Switzerland ($4 million).

Business

UES Prepared To Cut Power To Chechnya

· An official with Russia's largest supplier of electricity United Energy Systems of Russia today said the utility is prepared to stop transmitting power to Chechnya at anytime, if the relevant political decision is taken. "We can cut off power quickly, but the decision is not ours," said the official who declined to be named. He noted that Chechnya actually receives electricity on a gratuitous basis and that no power is transmitted via the republic to other regions. UES estimates that Chechnya's electricity bill has reached 630 million rubles and that Grozny does not pay for electricity at all. This caused a three month delay in wages at the Stavropol and Nevinomyssky hydroelectric stations which supply the power to Chechnya. Power consumption in Chechnya has dropped 70 percent from the pre-war level.

Antonov Plane In June Aerospace Show

· The Antonov Aircraft Research and Development Complex, or Antonov ANTK will display its Antonov An-140 plane at the aerospace show in La Bourget, France, in June. Two An-140s are in certifying flight tests outside of Kiev. The two planes, whose serial production will involve a Ukrainian factory, by March have been through 230 flights. The certifying tests are to be finished by late 1999. The third experimental An-140 is in static testing. The

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assembly of the fourth plane is nearing completion in Kharkov, Ukraine, and that plane is scheduled for a maiden flight in the early spring. Serial production of the An-140s will be based at the Kharkov Aircraft Factory and Russia's Samara factory Aviakor. The Kharkov Factory has started the assembly of seven planes, in accordance with outstanding contracts. Experts forecast good commercial prospects for An-140s. Over 700 planes are estimated to find markets in the CIS alone. Ukraine's demand is estimated to be for 90 planes, while Russia will require 460 and other CIS states 170 An-140 planes.

VympelCom Bee Line Offered In Canada

· VympelCom company, a leading Russian cellular operator, is offering users of its dual-band Bee Line network roaming services through Canada. The cell phone system is based on the SM 900/1800 standard. The roaming agreement was signed between VympelCom and Microcell Telecom, an operator of Canada's Microcell Connexions network, which is also based on the GSM 1800 standard. VympelCom says it is the first Russian company to offer international roaming with Canada. Users of VympelCom's Bee Line network can now use automatic roaming in 40 countries worldwide.

Ericsson Signs $30 Million Contract

· Swedish telecommunications company Telefon Ericsson has signed a contract worth $30 million with Digital Cellular Communications (DCC) to expand its mobile Time Division Multiple Access (TDMA) network in Ukraine. DCC is the second largest mobile operator in the Ukraine. The expansion will allow DCC to increase both capacity and coverage of the TDMA. The network is a mobile communications standard used by some 95 million subscribers.

South Caucasus & Central Asia

Georgia Releases Unemployment Figures

· The Georgian State Statistics Department on Monday released a report showing that Georgia has over 98,000 citizen who have officially registered as unemployed. Over two-thirds are under 30 and over 20,000 are older than 50. Of these, 27,000 have earned a university education, 25,000 vocational education and 41,000 secondary education. Women make 54 percent of the jobless. The unemployed people survive on a public assistance of only ten lari, or $5, a month for half a year after registration. Specialists speculate that the real number of the jobless is at least three times greater than the official figure. Over the last seven years, 400,000 residents of Georgia, which has a population of about five million, have gone to Russia, Ukraine, Greece, Turkey, Germany and the US to look for jobs.

Afghan Peace Talks Begin In Turkmen

· Senior and official representatives of Taliban led by Mohammad Yonus QANUNI and the Northern opposition alliance led by Mulavi Wakil Ahmad MUTAWAKET began Afghanistan peace talks in Ashgabat under the auspices of the United Nations. This morning the sides exchanged views on the major issues to be discussed. According to a United Nations Special Mission to Afghanistan (UNSMA) statement, "the start of the talks between the senior delegation clearly demonstrates the shared willingness of both sides to search for a political settlement through face-to-face negotiations." It also said that, "the talks are based on the mutual willingness of both sides and are held without pre-conditions or pre-arranged agenda." The Turkmen government since 1991 has led Central Asian nations in promoting peace in the region through economic development and support for stability. Turkmenistan and other

European Republics

Ukraine Considers Lifting Restrictions

· The Ukrainian Central Bank is considering lifting its restrictions on interbank foreign currency trading, if the International Monetary Fund (IMF) decides to disburse suspended funds in March. Ukrainian officials hope that the IMF will renew funding from a three-year $2.2 billion Extended Fund Facility, after a number of reforms have been approved in line with IMF demands. Liberalizing the currency market is a major conditions to resumption of lending. A Ukrainian official said, "However, if the IMF says its won't give us anything, then there would be no point in renewing the interbank market." Finance Minister Sergei TYHYPKO said that the board of IMF directors are expected to decide Ukrainian lending by the end of this month. He said that a decision by the Constitutional Court on Tuesday to overrule a parliament decision that the government had no right to raise utilities tariffs has helped Ukraine's position. President Leonid KUCHMA is also expected to sign a decree on the administrative reform.

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nations are concerned that continued war and conflict in the heart of their region will affect the stability of the Central Asia community. Taliban heads and the Northern opposition alliance expressed appreciation to Turkmenistan for its role in establishing an atmosphere which brought both sides to the table for direct negotiations.

Oil And Gas Conference Opens In Ashgabat

· An international Oil and Gas 1999 Conference opened in Ashgabat on Wednesday. It is traditionally held in Spring-time and draws the world's leading oil and gas companies. This time more than 130 companies are exhibiting and advertising their products at the Expocenter of the Turkmenistan Chamber of Commerce and Industry. Alongside the exhibition, an international conference dealing with Turkmenistan oil and gas sector projects is to open today. The conference is to be attended by more than 250 delegates of various corporations and firms. The program of the conference covers a wide range of subjects and hopes to answers to questions from potential investors and partners. It also will promote the experience gained by foreign companies operating in Turkmenistan. The trans-Caspian gas trunkline project, which progresses towards determining members of an international consortium concerned, will be the central subject of the exhibition and the Turkmenistan Oil and Gas 1999 conference. Turkmen Oil and Gas Minister Rejepbai ARAZOV said the country can produce 90 billion cubic meters of natural gas annually. He predicts that figure could rise to 100 billion cubic meters annually, once new fields are opened. Turkmen is exporting 20 billion cubic meters of natural gas to Ukraine and 4 billion cubic meters to Iran. ARAZOV said that his country, "can provide consumers with any amount of natural gas required. The question is whether they have the money to pay for it."

Shell, MOL Study Caspian Delivery Options

· Shell International Gas Ltd. and Hungary's integrated oil and gas company MOL Magyar Olaj-Es Gazipari have agreed to study the feasibility of

delivering natural gas from Turkmenistan and the Caspian Sea region to Hungary and Western Europe. The companies will examine the possibility of gas delivery either via Turkey or through alternative routes. Under the agreement, Dow Jones Newswire reported, Shell and MOL will study optimal transport routes, conclude necessary trade deals, and create legal and technical conditions to facilitate the project. Shell International is a branch of Royal/Dutch Shell.

Kyrgyz To Concentrate On Economy

· Kyrgyz President Askar AKAYEV said that his country will further strengthen security cooperation with neighboring countries, and will actively participate in the integration process of the Commonwealth of the Independent States (CIS). A Russian military delegation is meeting with Kyrgyz counterparts this week to discuss military and technical cooperation within the CIS. It is very important for Kyrgyzstan to have a favorable peripheral environment, AKAYEV said in an article published in Russia's Independent Newspaper on Wednesday. After signing several agreements with some countries on strengthening mutual military trust and regional disarmament, Kyrgyzstan has finally settled border issues left over by history, AKAYEV said. While talking about the internal economic situation, AKAYEV said that the major task for the whole country is to maintain and strengthen the positive trend of the economic development. Deputy prime minister Boris SILAYEV said that Kyrgyzstan will do all it can to avoid defaulting on its foreign debt. "We must not fail [to repay debts], as the prestige of our state is at stake. Foreign debt questions are the first priority for us." AKAYEV said Kyrgyzstan was expected to spend $60 million this year servicing foreign debt, which is estimated by the Finance Ministry to be about $1 billion. SILAYEV said, "We have managed to restructure a loan, given by Turkey, to extend the deadline of its repayment and to obtain more advantageous conditions for its servicing. We are also involved in similar talks with Pakistan and Russia." He pointed out that Kyrgyzstan has reached an agreement with the EBRD on restructuring an agricultural loan.

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

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