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 24, 1999

Russian Federation

Politics

Primakov Criticized For Cancellation Decision

· Several leading political figures openly criticized Russian Prime Minister Yevgeny PRIMAKOV's decision to return to Russia, postponing the scheduled US visit on word that NATO strikes were imminent, instead of staying to meet with International Monetary Fund (IMF) officials. Moscow Mayor Yuri LUZHKOV said the Prime Minister should have landed in the US and delivered a statement denouncing the NATO strikes. He felt that the statement would have more of an impact than returning to Russia. Former prime minister Viktor CHERNOMYRDIN said PRIMAKOV made the wrong decision because Russia's national interests are more important than commitments to Yugoslavia. He said that PRIMAKOV should have talked with the IMF and secured the necessary loans. Grigory YAVLINSKY, leader of the Yabloko Party, said that PRIMAKOV should have come to Washington and discussed the problem of Kosovo with US President Bill CLINTON. If these talks failed, YAVLINSKY believed that PRIMAKOV could have presented Russia's opinion on Kosovo to the UN Security Council. He noted that each time Russia gets involved militarily, it looses. Specifically, he mentioned that aggression in Afghanistan and Chechnya caused the break-up of the Soviet Union. He warned that any Russian military moves could lead to the disintegration of Russia. Democratic Russia representative YUSHENKOV said that PRIMAKOV should he resign. He believes that PRIMAKOV should have known ahead of his visit that NATO was planning to strike Kosovo—and if he didn't realize this, then he is incompetent. Liberal Democratic Party leader Vladimir ZHIRINOVSKY called on bandits to volunteer to fight for Russia in Yugoslavia. Kommersant Daily denounced PRIMAKOV and accused him of betraying Russia.

The newspaper featured an article with the headline "$15 Billion Lost For Russia Because Of Prime Minister's Behavior." The newspaper's editor-in-chief apologized to the Prime Minister in a letter, stating that the article had not been approved. President Boris YELTSIN addressed the nation on television tonight appealing to CLINTON and the world community to stop NATO aggression against Yugoslavia. He warned that it could irreparably damage European stability.

Ilyukhin Charges Yeltsin With Siphoning Funds

· Russian Communist hard-liner Viktor ILYUKHIN on Tuesday sent a letter to General Prosecutor Yuri SKURATOV detailing money transfer operations by President Boris YELTSIN, his family and top level officials in which part of the $4.8 billion disbursed from the International Monetary Fund (IMF) last July was siphoned to an offshore company. ILYUKHIN believes that $235 million was transferred to a bank account of an Australian firm where YELTSIN's daughter Tatyana DYACHENKO holds a 25 percent stake, "through her Luxembourg representative." The letter cites "competent foreign sources." ILYUKHIN's assistant Alexander VOLKOV declined to give information about the sources. The Kremlin had no immediate comment on ILYUKHIN's charge.

Bomb Threat At US Embassy

· The US Embassy in Moscow late Tuesday received an anonymous bomb threat. Moscow authorities quickly sent teams of engineers, police, fire trucks and ambu

Today's News Highlights

Russia

Small Gov't Reshuffle

Business Park Attracks IBM

European Republics

Estonia Appoints Council Head

Lazarenko Still Seeking Asylum

South Caucasus & Central Asia

Kaiser Reviews Peace Progress

AES On Georgian Energy

Luzhkov To Visit Azerbaijan

Uzbek Gets Japanese Loans

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March 24, 1999

Intercon's Daily

lances to the embassy building. The city emergencies department discovered that the threat to blow up the embassy was false. The Embassy also carried out its own check. Embassy officials thanked Moscow authorities for prompt response to the incident.

Government Shake-up During Instability

· Prime Minister Yevgeny PRIMAKOV returned from his trip to Ireland and the postponed visit to the US to sign decrees dismissing several government representatives. He relieved First Deputy State Property Minister Alexander BRAVERMAN, Russian deputy manager at the EBRD Alexei KUDRIN, and Deputy Fuel and Energy Minister Igor KOZHUKHOVSKY, RFE\RL Newsline reported. KUDRIN has been replaced by First Deputy Finance Minister Mikhail KASYANOV. Argumenty I Fakty news agency reported that first deputy head of the presidential administration Oleg SYSUYEV has tendered his resignation. Moscow's Center TV, however, was unable to verify that report. SYSUYEV has been accused off arranging the airing on national television of a sexually explicit tape of a man who looks like Prosecutor General Yuri SKURATOV with two prostitutes. SYSUYEV has denied any involvement in the scandal.

Economy

Ruble = 24.29/$1.00 (NY rate)

Ruble = 24.22/$1.00 (CB rate)

Ruble = 26.42/1 euro (CB rate)

IMF Negotiations To Continue In Moscow

· Due to the cancellation of Russian Prime Minister Yevgeny PRIMAKOV's trip to the US, plans for top level negotiations with the International Monetary Fund's (IMF) Managing Director Michel CAMDESSUS have been postponed. An IMF spokeswoman said, "We regret the delay, but we will continue the discussions in other ways, when, and where possible." She had no dates for new talks in Moscow between Russia and the IMF and could not say when PRIMAKOV might visit the IMF again. PRIMAKOV has held several conversations with CAMDESSUS over the telephone. The Managing Director said he is interested in finalizing negotiations as soon as possible. PRIMAKOV said, "I reaffirmed our desire to meet and told Michel CAMDESSUS that a meeting with him was one of the main points on the program for the visit to the United

States." He believes it is likely the two will meet within the next few days. Later, new reports said the meeting has been scheduled for March 27th in Moscow. Russian officials have been seeking a loan of $4.5 billion from the IMF, enough to pay back IMF loans falling due this year and to open the door for negotiating the rescheduling of other debts. PRIMAKOV attached special importance to continued negotiations, noting that Russia, "does not trade in principles: the [Kosovo] problem is one thing and negotiations with the IMF are another."

Unemployment Increased In February

· The Russian Committee for Statistics on Thursday released a preliminary report showing that the overall number of the unemployed in Russia, calculated according to the methods of the International Labor Organization, increased by 0.3 percent by the end of February in comparison with January to reach 8.983 million people. This represents 12.4 percent of the economically active population. The number of the officially registered unemployed went up by 1 percent in February and amounted to 1.956 million people, which makes 21.8 percent of the total number of the unemployed and 2.7 percent of the economically active population. At the end of February 1999, the strength of the economically active population of Russia was estimated by the Russian Committee for Statistics as 72.2 million people, about half of the country's population. About 66 percent of the economically active population Are employed by large and medium enterprises.

Business

Yukos Bars Shareholders From Key Meeting

· Russia's second largest oil company Yukos called a shareholder's meeting to approve a plan to double the number of shares at Samaraneftegaz and issue them to four offshore companies with no apparent relations to Yukos. The Minority shareholders mustered the 25 percent of voting shares needed to block the move, but were barred from attending the meeting by a court order obtained by Yukos. The court order arrested most of their shares. The issuance of shares for Samaraneftegaz, leaving foreign banks and investors with diluted holdings, is the first of three planned for this month. The other two involve subsidiaries Tomskneft and Yugansk-neftegaz. Yukos, controlled by oil and banking businessman Mikhail KHODARKOVSKY, appears to be

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using the share issues to transfer property and profit from subsidiaries, which are burdened with debt, into Rosprom. The Wall Street Journal reports if that happens, Yukos' stake in its subsidiaries will be reduced from 51 percent to 16 percent. Relations with minority shareholders soured during the financial crisis, when KHODARKOVSKY's Menatep Bank defaulted on millions of dollars of loans that he had pledged against Yukos stock. As a result of the default, Germany's West Merchant Bank, a division of Westdeustche Landesbank, ended up with a 15 percent stake in Yukos and Japan's Daiwa Bank Ltd. took a 14 percent stake.

Business Park Attracts IBM

· Moscow's plan to develop a nine-acre business park located 25 minutes from the Kremlin and 25 minutes from Sheremetyevo International Airport has attracted the attention of US computer giant International Business Machines (IBM). IBM has signed an occupancy agreement with the park's developer, paving the way for its Moscow headquarters. The Park will be built by Lend Lease Ltd.'s affiliate Chelverton Properties, which Lend Lease acquired from P&O in 1996. The project calls for $500 million, with $1 million already spent on feasibility studies and models. A real estate survey shows that Moscow is in no great need of office space. Of the city's 335,000 square meters of office space, more than 40,000 square meters are vacant, The Journal of Commerce reported. Head of European operations for Lend Lease Ltd. Peter WALICKNOWSKI said, "Our approach is to let the market lead, let the occupier lead." He also pointed out that Lend Lead and Chelverton will have a maximum exposure of $10 million per building to start, with leases in hand before the first spade is turned. A memorandum of understanding has been reached with a second company, which stated that if IBM commits to the project, it will do the same. IBM has committed to only one office building so far.

Kulik Assures No Tobacco Nationalization

· Russian Deputy Prime Minister Gennady KULIK assured US cigarette producers that there will be no nationalization of the tobacco industry in Russia. He stated this at a meeting with US enterprises at the US-Russian Business Council on Thursday. KULIK is on a working visit in Washington. "You may rest assured there will be no nationalization," KULIK said,

addressing manufacturers of Philip Morris and Salem brands of cigarettes. Regarding the state of affairs in the tobacco industry, a profitable industry, KULIK said that it is developing successfully. In 1998, the output of cigarettes was 203 billion compared with 170 billion in 1997. Regarding the attraction of investment, KULIK suggested building "several joint enterprises" in Russia's Far East so that cigarettes be supplied to China's Northern districts.

European Republics

Estonian Coalition Council Appoints Head

· Andres TARAND, leader of the Moderates, has been appointed as head of the ruling alliance's Coalition Council. The nine-member council will be responsible for proposing changes with in the ruling coalition and Cabinet, preparing important political decisions, and solving disputes within the three-party alliance. Before elections, TARAND had widely been supported as the next prime minister. The RFE\RL Newsline expressed surprise when he was not given a post in the new government.

Lazarenko Refutes Ukrainian Reports

· Ukraine's former prime minister Pavel LAZARENKO, accused of abuse of power and money laundering, refutes official reports in Ukraine that he was denied political asylum in the US. The Gromada Party, of which LAZARENKO is the leader, said that the New York court has refused to extradite LAZARENKO. The Ukrainian General Prosecutor's office has issued a warrant for his arrest. The Ukrainian Foreign Ministry said that LAZARENKO categorically resisted a visit to him by Ukraine's Consul-General as well as other contacts with Kiev official representatives.

South Caucasus & Central Asia

Kaiser Reviews Georgia-Abkhaz Conflict

· US State Department representative for the settlement of Caucasian conflicts Donald KAISER arrived in Georgia on Tuesday for a five-day working visit. Aiming to collect information on the progress of the Abkhazian settlement talks, KAISER will meet with Georgian President Eduard SHEVARDNADZE

State Minister Vazha LORDKIPANIDZE, and other officials. KAISER told Georgian Speaker Zurab ZHVANIA that the US is ready to actively join efforts for achieving stability in the Caucasus. He noted that

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the meeting of Georgian, Azeri, and Armenian speakers in Strasbourg under the aegis of the Council of Europe was an important step in reaching that stability. ZHVANIA briefed KAISER on the process of the Georgian-Abkhazian settlement talks. The Georgian speaker said that his nations believes the conflict can be solved by peaceful negotiations and that the safe return of refugees to the Gali region must be under strict international control and guarantees. KAISER is scheduled to meet with Abkhazian representatives in Sukhumi and then return to Tbilisi for continued negotiations with Georgian authorities.

KAISER's visit follows on the heals of Russian Deputy Foreign Minister Leonid DRACHEVSKY and ambassador at large Lev MIRONOV visit to Tbilisi and Sukhumi from March 17th to 20th. They met with LORDKIPANIDZE and MENAGARISHVILI in Tbilisi and Abkhazian leader Vladislav ARDZINBA and his personal representative Anri DZHERGENIYA in Sukhumi. Russian Foreign Ministry's spokesman Vladimir RAKHMANIN said, "The separately held talks resulted in considerable rapprochement of the parties' positions on the draft protocol on refugees' return to the Gali region and on measures to restore economy." He noted that Russia is working to achieve mutually acceptable agreements.

AES On Georgian Power Possibilities

· AES, a US company responsible for running the main electrical utility in Tbilisi, defended itself, after a power shortage led to a black out in Georgia last week. AES said it had paid $5 million to Sakenergo, the Georgian national power grid, to import electric power from Russia, but it failed to deliver. The Associated Press reported that Sakenergo Chief Emzar CHACHKHIANI said his company couldn't fulfill its obligations because the power lines have been cut by thieves, who have stolen the copper wires for sale. Power shortages have plagued Tbilisi and other Georgian cities since the fall of the Soviet Union, providing only a few hours of electricity each day. AES Vice President Michael SCHOLE on Fri

day in a national television interview promised that the company would ensure import of energy from Armenia. It is not clear whether existing power lines will allow for that.

Luzhkov To Visit Azerbaijan

· Moscow Mayor Yuri LUZHKOV is scheduled to visit Azerbaijan on March 29th. According to the provisional program, the delegation from the Moscow city government led by Yuri LUZHKOV will be received by Prime Minister of Azerbaijan Artur RASI-ZADE and President Geidar ALIYEV. In addition, Yuri LUZHKOV will pay a visit to the Pedagogical University of the Russian Language and Literature, Secondary School No. 1 in Baku, and meet actors of the Russian Drama Theater Company.

Japan Pledges Loans, Grants To Uzbekistan

· Today, Japan has pledge up to 12.69 billion yen in loans for a telecommunications project and 470 million yen in grants for hospitals to Uzbekistan. The announcement was made during Uzbek Prime Minister Utkur SULTANOV's visit. Japanese Prime Minister Keizo OBUCHI pledged the yen-denominated loans and Foreign Minister Masahiko KOMURA exchanged a note for implementing the grants during their separate talks with SULTANOV. The loans will be for a second project to expand telecom networks in the former Soviet republic in Central Asia, making it the third yen credit by Japan, including 12.7 billion yen agreed to in June 1995 for the country's first telecom network project. Japan's Foreign Ministry said that the loan and grant reaffirms Japan's commitment to support Uzbekistan through its transition into a market economy. KOMURA told SULTANOV that Japan intends to focus its aid on projects to develop transportation, telecom and human resources for the market transition. KOMURA described Uzbekistan as "the key nation" for stability in Central Asia and for Japan's Silk Road diplomacy. OBUCHI and KOMURA agreed with SULTANOV to further deepen bilateral ties. OBUCHI stressed it is important to keep up "multifaceted exchanges in economic, political and cultural areas."

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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