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, March 17, 1999

Russian Federation

Politics

Sukratov's Resignation Voted Down

· Today before a meeting of the Federation Council, Yuri SKURATOV, who submitted his resignation from the post of prosecutor general, changed his mind and said he would obey any decision the Federation Council makes. The upper house, in a vote of 142 senators to six members with three abstentions, refused to approve his resignation which had been accepted by the Russian President. SKURATOV's decision was unexpected for North Ossetia President Alexander DZASOKHOV and other senators. "We all thought that he would tell us about the work of his office and would confirm that his resignation remains in force. But he made it different and that determined the decision of the chamber," DZASOKHOV said. Chairman of the Federation Council Committee on Constitutional Legislation and Judicial Matters Sergei SOBYANIN said that according to the Constitution today's decision by the Federation Council not to relieve Yuri SKURATOV of the duties of Prosecutor-General may be legitimate if he withdraws his resignation petition addressed to the President. SKURATOV said there are people among officials interested in his resignation who are connected with privatization, officials of a very high rank and some oligarchs. He gave no concrete names, but referred to several deputies of the State Duma, two ex-deputy prime ministers, ex-ministers and ministers now in office, their deputies and some officials of the Central Bank as involved in GKO abuse. Many believe, however, that SKURATOV's further service in that position depends on YELTSIN's reaction to the Federation Council's decision. Russian State Duma deputies welcomed the Federation Council's decision to vote down Yuri SKURATOV's request for resignation from the post of Russia's Prosecutor-General.

Russia Offer US Deal On Cooperation With Iran

· Russia's Atomic Energy Minister Yevgeny ADAMOV presented a plan to senior CLINTON Administration officials last week that Russia would curtail nuclear cooperation with Iran, if Washington lifts its sanctions against two leading Russian nuclear research centers: the Scientific Research and Design Institute for Power Technology (Nikiet) and Mendeleyev University of Chemical Technology. The sanctions were imposed as Intercon reported on January 13th after US intelligence revealed technology leaks. ADAMOV's proposal addresses Washington's concerns that Russia is transferring dual use technology to Iran which could be used to produce plutonium for nuclear bombs. Russia is already building several nuclear power reactors at Bushure in Iran and is committed to completing the project. Russia has also been asked by Iran to build three more reactors. One US expert said, "Nikiet is really at the center of our concern. It is the principal Russian entity that could provide assistance beyond Bushure. If we can address Nikiet we have made a very significant step," The New York Times reported. ADAMOV last year requested that Nikiet , once led by him, cut all ties with Iran and he has confirmed it has done so. American officials note there are signs that contacts are continuing. Sanctions against Nikiet has deprived the institution of several million dollars worth of work. His plan also calls for establishing a procedure to discuss future disputes about the provision of Russian nuclear technology to Iran. Many experts believe that the proposal, unlikely to be en

Today's News Highlights

Russia

Cuts In Oil To Change Exports?

LUKoil-Gazprom Develop Fields

Independt Tymenenergo

European Republics

US Denies Lazarenko Asylum

South Caucasus & Central Asia

Kviraya Returns From Moscow

CPC Awards Terminal Contract

Turkmen-Uzbek Econ. Relations

Kazakhstan Raises Tariffs

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forceable, is meant to boost Russia's position during the upcoming critical talks on security issues next week between Prime Minister Yevgeny PRIMAKOV and US officials.

Duma To Push for START-II Ratification

· Ahead of Prime Minister Yevgeny PRIMAKOV's visit to the US on March 24th, the Russian State Duma has decided to forward to President Boris YELTSIN the draft law on the ratification of the Russian-American START-II Treaty. The 1993 treaty calls for the reduction of Russia and US' deployed nuclear warheads by two-thirds. The timing of the Duma's proposal to give a boost to PRIMAKOV's visit comes a week after the Duma voted to cut the value-added tax (VAT). This vote was counter to PRIMAKOV's request to delay the decision until after the International Monetary Fund makes a decision to renew lending. Further progress on arms reduction treaties could help Russia win financial support from Washington. If there is no ratification, PRIMAKOV said he, "is more than sure" that Washington will quit the 1972 Russian-American ABM Treaty. Prior debates for ratification were delayed after the US began military attacks on Iraq and signaled it wants revisions to the ABM Treaty. Russia views the ABM treaty as the main stabilizer of world nuclear deterrence. The US has requested a review of the ABM Treaty in the light of developing a missile defense system to protect against threats from rogue states such as North Korea and Iran. A delegation of US Congressmen in Moscow on Tuesday attempted to relieve concerns that by calling for the revision of the ABM Treaty, the US would negate the ABM Treaty. Pennsylvania representative Curt WELDON said, "I think there's concern that America may be attempting to negate the ABM Treaty, which some in America would like to do immediately, but others would not...We assured the Duma that that was not something we were attempting to do." He added that Russian deputies believe that observance of the ABM Treaty is a vital condition for the Duma to ratify the START-II Treaty.

Economy

Ruble = 23.35/$1.00 (NY rate)

Ruble = 23.41/$1.00 (CB rate)

Ruble = 25.69/1 euro (CB rate)

Finance Ministry Surprised At CSFB Proposal

· Russian Deputy Finance Minister Oleg VYUGIN

expressed surprise on Monday that Credit Suisse First Boston (CSFB) had decided to turn down the government's swap offer on frozen domestic debt (GKOs and OFZs) before the final terms were released. Instead, CSFB has decided to set up the Nikitsky Recovery Fund Ltd. to re-invest proceeds in the Russian economy. VYUGIN said that CSFB had not discussed its alternative plan or its decision with senior Finance Ministry officials. He said, "I am almost certain there have been no talks with the Finance Ministry—not with any of the officials. It is solely their decision." VYUGIN said that the Central Bank will soon publish terms of the investment accounts into which funds from maturing treasury bills would accrue to CSFB, assuming it had turned down the government plan. He expects that investors who refuse the government swap will be able to buy the same new OFZs, using funds in the investment account, but on less profitable terms. Deutsche Banks, Chase Manhattan Bank, and Credit Lyonnais have accepted the Russian government's terms, despite estimates that returns on investments may be as little as five cents to the dollar.

Cuts In Oil May Change Russia's Exports

· Russian Fuel and Energy Ministry spokesman Oleg RUMYANTSEV Monday said that Russia welcomed the agreement on oil output cuts announced by 10 Organization of the Petroleum Exporting Countries and non-members Mexico and Oman. In the Hague, major oil exporters agreed to cut oil supplies by over 2.5 million barrels per day. RUMYANTSEV said, "Russia expresses its approval with the steps undertaken by those countries which agreed to cuts. We support them." He said that Russia is still working out its position. "We do not yet have a definite position on what level of cuts will be implemented. This question has now been raised, and after consultation we will announce our position." Today, Moscow will hold a forum devoted to the possibility of reducing Russian oil exports. The cuts so far have boosted oil prices from around 25-year lows late last week, although the price of Brent crude futures, closed at $12.56 per barrel below the 1998 average of $13.34 per barrel. Fuel and Energy Minister Sergei GENERALOV has attended the last two OPEC meetings as an observer. LUKoil president Vagit ALEKPEROV stressed that his company is against the reduction of oil production. According to him, over the past 10 years Russia has reduced its

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oil production practically two-fold and, "now the country, like its entire industrial sector, is in a serious situation, that is why we cannot allow reducing oil production."

Punishment For Nonpayment of Wages

· Russian President Boris YELTSIN on Monday signed a federal law amending the Criminal Code and establishing punishment of up to seven years in prison for failure to pay wages. The law, adopted by the State Duma on February 17, 1999, amends Article 145 of the Russian Criminal Code. Under the law, the head of a company, institution or organization, irrespective of the form of ownership, who has failed to pay wages, pensions, stipends, allowances or other payments established by law for more than two months, for selfish or other personal considerations, will have to pay a penalty of 100 to 200 minimum wages or may be prohibited from holding certain positions or engage in certain activities for up to five years, or may be put in prison for up to two years. If the same offense entails grave consequences, the person responsible will have to pay a penalty of 300 to 700 minimum wages, or may be put in prison for up to three to seven years and/or prohibited from holding certain positions or engage in certain activities for up to three years.

Business

LUKoil-Gazprom To Develop Barents Sea Fields

· Russian oil company LUKoil President Vagit ALEKPEROV said that LUKoil and gas monopoly Gazprom can jointly develop oil and gas fields on the Barents Sea shelf adjoining the Kola peninsula. On Tuesday, ALEKPEROV and Murmansk Governor Yuri YEVDOKIMOV signed a cooperation agreement. The company is also considering its participation in the construction of an oil refinery in the Murmansk region. LUKoil pledges monthly supplies of crude oil to oil refineries, including the one in the Leningrad region. The company has an oil tanker fleet, including ten ice-breakers, in the Russian north. This would make it possible for LUKoil to bring petroleum products to the northern areas and develop fields in the Timano-Pechora zone. "The Murmansk region and the whole north of Russia are a strategic area for the company. We are satisfied with the constructive dialog and sure that the document signed today will promote a mutually beneficial cooperation," ALEKPEROV noted.

Calls For An Independent Tyumenenergo

· The administrators of 13 largest cities and districts of West Siberia's Tyumen region in an open letter to Prime Minister Yevgeny PRIMAKOV today have called for Tyumenenergo joint company to be established as an independent entity from the United Energy System of Russia (UES). The letter states that the establishment of a new company, "will make it possible for the state to hold 100 percent of the Tyumenenergo stock and shares as federal property, and guarantee stable and uninterrupted energy supplies to the strategic installations both inside and outside the region through the state's direct participation in the management of the energy system." At present, 100 percent of the Tyumenenergo stocks and shares belong to UES.

European Republics

US Denies Asylum To Ukraine's Former PM

· The New York Immigration Court has refused to grant political asylum to former Ukrainian prime minister Pavel LAZARENKO, who is accused of large-scale embezzlement in Ukraine. Chief of the Consular department of the Ukrainian Foreign Ministry Viktor KIRIK said it was established that, "LAZARENKO was not an acceptable persona for the United States." Nevertheless, under the US legislation LAZARENKO might receive a status which prevents his extradition to a country where his life or freedom is jeopardized. In order to get this status, LAZARENKO must submit evidence that he would be persecuted in his native country. If the court rules that the evidence is substantiated LAZARENKO is unlikely to be extradited to Ukraine. LAZARENKO was accused of opening illegal bank accounts abroad, illegal appropriation of state funds, and abuse of office. An investigation into LAZARENKO's activities is also being conducted in Switzerland where LAZARENKO is accused of laundering money appropriated by illegal means.

South Caucasus & Central Asia

CIS Intelligence head Returns From Moscow

· Chairman of the Council of Commonwealth of Independent States (CIS) Heads of Intelligence Agencies and member of Georgia's Security Council Lieutenant-General Shota KVIRAYA ended his offi

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cial visit to Moscow on Tuesday. During his trip, KVIRAYA met with top level officials from Russia's Defense Ministry and the Federal Security Service (FSB), as well as with director of Russia's Foreign Intelligence Service Vyacheslav TRUBNIKOV. The two intelligence officials agreed that Russia's and Georgia's intelligence agencies will further develop cooperation in counteracting international terrorism, organized crime, drug trafficking, and in other areas of mutual concern. According to a spokesman for the Russian Foreign Intelligence Service, both sides expressed, "confidence that this visit will help further strengthen Russia-Georgian interstate relations."

CPC Awards Black Sea Terminal Contract

· The Caspian Pipeline Consortium (CPC) on Tuesday awarded a $360 million contract to build a new Black Sea oil export terminal at the Russian port of Novorossiisk to Bouygues, the French construction group, and Bouygues Offshore, the Financial Times reported. Two Russian companies, Kubanneftegastroi and Stravropoltruboprovodstroi, will also be involved in the construction. The terminal will be 20 kilometers away from the existing congested oil export facilities in the port. The terminal will hold oil from the $2.2 billion CPC pipeline connecting Kazakhstan's Tengiz and Karachaganak fields with Novorossiisk oil export terminal. Of the $2.2 billion investment, about half will be spent in Russia and Kazakhstan. Chief operating officer of Bouygues Jacques LEOST said that the project is technically straightforward, but has a demanding schedule. The first oil shipment is due in July 2001, with the mechanical completion of the terminal planed for December 31, 2001.

Turkey-Uzbekistan Strengthen Econ. Relations

· In a joint statement Monday, Uzbek President Islam KARIMOV and visiting Turkish President Suleyman DEMIREL stressed that their countries will join forces against terrorism and give each other the necessary assistance in this area. The two leaders also discussed bilateral economic relations and building good reliable partnerships. DEMIREL noted that

there are about 400 Uzbek-Turkish joint ventures, representative offices of various Turkish firms and companies, which successfully operate in Uzbekistan. The President said that his country has invested more than $1 billion in the Uzbek economy since 1991. Turkey has attached great importance to developing its relations with Uzbekistan and spared no efforts in strengthening bilateral cooperation since the latter gained independence, DEMIREL said. He added, "Turkey will be ready to provide every assistance and support to Uzbekistan in all of its efforts to build a new democratic and civilized secular state." KARIMOV said that Turkey's experience building a secular democratic state will serve as a model for Uzbekistan which faces attempts to create an Islamic state.

Tuesday, DEMIREL participated in the opening of the Uzbek-Turkish joint venture SamKOCavto which will make medium-size buses and trucks of various modifications capable of carrying 1.5 to 8 tons of cargo. According to chief engineer Bakhodyr SULEYMANOV, Turkey invested $70 million in the project. During DEMIREL's visit, the Turkish-Uzbek Business Council will convene to explore opportunities to boost the existing economic and trade relations and raise the trade volume between the two countries. Trade turnover reached $400 million in 1998. Uzbekistan also expressed interest in joining the Black Sea Economic Cooperation Organization (BSECO) and gain from the NATO member's military cooperation with Georgia and Azerbaijan.

Kazakhstan Raises Import Duties

· The Kazakhstan Energy, Industry, and Trade Ministry on Thursday announced that beginning on April 4th Kazakhstan will raise import tariffs on white sugar beef, pork, poultry and other meat products. The government introduced a 20 percent tariff on rice imports. In January, Kazakhstan banned imports of most food stuffs from Russia and in February imposed a 200 percent tariff on imports from Kyrgyzstan and Uzbekistan.

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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