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

Wednesday, March 3, 1999

problem in Russia...THATCHER also curbed bureaucracy and that too is something we need to do in Russia," the Financial Times reported. The party is backed by a secretive group of businessmen alarmed at the situation in Russia. The creation of Thatcherists of Russia was initiated by Yuri DOROFEYEV, who in the late 1980s-early 90s was an activist of the Leningrad Popular Front and who created the Party of Democratic Capitalism in 1997, which subsequently joined the alliance of the rightist parties and movements of St. Petersburg. In January 1999, DOROFEYEV was elected chairman of the Political Consultative Council of St. Petersburg. The new party is expected to have two headquarters in St. Petersburg and in London, with branches in 20 Russian cities. Participants in the founding congress decided that the party would not choose its leader for the next two years and skip elections until stable and trustworthy primary organizations are set up. Former British prime minister Margaret THATCHER expressed no public support for her Russian followers.

US Expresses Nuclear Material Concerns

· US Secretary of Energy Bill RICHARDSON, speaking at the National Press Club in Washington on Tuesday, pointed out that to render technical and financial assistance to Russia in ensuring safe and reliable storage of its nuclear materials is one of main nuclear non-proliferation tasks facing the Department of Energy. He stressed that Washington continues to work with Moscow on this problem. US President Bill CLINTON has suggested allocating addition

Russian Federation

Politics

Yeltsin Appoints Com. For Contacts With G-7

· Russian President Boris YELTSIN has appointed members of the inter-departmental commission to mediate Russia's contacts with Group of Seven member states, or Group of Eight with Russia. The commission will be led by Economics Minister Andrei SHAPOVALYANTS, in charge of contacts with leaders of G-7 states. Deputy Foreign Minister Georgy MAMEDOV has been made the commission's political director and deputy chairman. The Foreign Ministry's economic cooperation department director Andrei DENISOV has been appointed as deputy presidential representative for contacts between G-7 leaders. Others on the commission are deputy presidential chief of staff Sergei PRIKHODKO, the Central Bank's first deputy chairwoman Tatyana PARAMONOVA and senior officials of several leading Russian ministries. The next regular meeting of G-8 leaders will be held in Koeln, Germany, on June 18th to 20th.

Thatcherists Of Russia Party Created

· A new conservative party, Thatcherists of Russia, was created in Russia's second largest city of St. Petersburg on Friday. The founding congress, involving some 400 people, passed the new party's manifesto which proclaims the party's basis as the, "economic and political philosophical doctrine known as Thatcherism, which once brought Great Britain out of a most grave crisis no better than the one Russia is living through." The party is committed to parliamentary democracy, privatization, monetarism, a flat tax rate of 20 percent and the creation of a Russian House of Lords. Ruslan FEDOROVSKY, a commodities trader and founding father, said, "Mrs. THATCHER successfully changed the attitudes of people towards wealth creation and that is the main

Today's News Highlights

Russia

CB To Appoint Auditor

Sidanko Bankruptcy Delayed

European Republics

Ukraine To Join CIS IPA

Vagnorius Considers Resigning

South Caucasus & Central Asia

Berezovsky Begins CIS Tour

Turkish Military Group In Tbilisi

Chevron Resumes Oil Deliveries

Kazakh-Japan Prospect For Oil

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March 3, 1999

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ally about $4.5 billion over the next five years for assistance to Russia and other ex-Soviet republics to ensure the safety of their nuclear materials and technologies. RICHARDSON believes that the Russian financial and economic crisis has increased concern for funding of reliable storage of Russian nuclear materials. He added that the old Soviet nuclear facilities and materials monitoring system have grown weaker and there is a lack of funds to support them. One US-Russian program, aimed at raising the level of protecting, accounting, and control of fissionable materials, is being implemented at more than 40 Russian facilities. The US attaches special importance to the Restricted-Access Cities project to convert 10 Russian nuclear centers for civilian production and the rendering of assistance to researchers and specialists who work there. Another area of cooperation between the two countries is connected with the training of law enforcement agencies to prevent the smuggling of nuclear materials and equipment out of Russia. RICHARDSON explained two more programs connected with the reprocessing of surplus nuclear materials. The first of them envisions the reprocessing of Russian highly-enriched uranium extracted from strategic arms subject to cutbacks, and the other one is aimed at reducing by 50 tons in each country the stocks of weapon-grade plutonium.

Economy

Ruble = 22.89/$1.00 (NY rate)

Ruble = 22.93/$1.00 (CB rate)

Ruble = 25.05/1 euro (CB rate)

CB To Call For Audit Of FIMACO

· The Russian Central Bank plans to ask auditing firm PriceWaterHouseCoopers to conduct a special audit of Financial Management Co. (FIMACO) the offshore company that managed the hard currency reserves from the Central Bank in the period of 1993 to 1997. Deputy chairman of the Central Bank Oleg MOZHAISKOV said the move was made to defend the Bank's professional and business reputation. FIMACO has been at the center of a scandal that broke early February when former prosecutor general Yuri SKURATOV, in a letter sent to the Russian State Duma just before his resignation, claimed that the previously obscure company had managed $50 billion of Russia's hard currency reserves over a five-year period. The Central Bank's former chairman

Sergei DUBININ and current chairman Viktor GERASHCHENKO have both denied any wrongdoing in the dealings, insisting that FIMACO was used strictly to safeguard Russia's currency reserves from litigious creditors. MOZHAISKOV responded to accusations by Duma deputy Nikolai GONCHAR that FIMACO was investing in GKO treasury bills for the benefit of the Bank's officials. He said, "Although I was not a witness to the events of those years, I am sincerely surprised by the irresponsibility of certain deputies who with suspicious ease make conclusions based on fragmentary information." He added that the Central Bank was not FIMACO's only client, and that money from Eurobank, a Russian overseas bank, also passed through the company. MOZHAISKOV noted that capital flows must seriously be analyzed and that "A professional audit report will put an end to this story."

Should Russia Still Hope For IMF Loans?

· Finance Minister Mikhail ZADORNOV still is hopeful that Russia's loan talks with the International Monetary Fund (IMF) will yield positive results in March or April. ZADORNOV said, "Russia is taking maximum efforts for achieving a compromise at the talks." If the talks lead to no accords with the IMF, ZADORNOV forecasts that "Russia faces two ways: either a full default on foreign debts or a full-scale [money] emission of the Bank of Russia above the parameters that are laid down in the budget for the year 1999." Russia earlier had pledged to keep the emission within 32.5 billion rubles in 1999. Former head of Our Home is Russia faction, Alexander SHOKHIN on Tuesday said that the IMF is reluctant to provide credits to Russia because of the Communist dominated parliament. He said, "In the current situation the IMF is confused by the fact that it has to give money to a government which enjoys the support of the communist majority." He added, "The IMF will insist to have the analysis of the fulfillment of the budget and of the capabilities of Russia to keep inflation under 30 percent. The IMF cannot but be confused by the absence of real actions of the Russian government in the sphere of reform restructuring." Russian First Deputy Prime Minister Yuri MASLYUKOV said the IMF, "is applying pressure [on Russia] and acting inappropriately." His statement follows IMF Managing Director Michel CAMDESSUS' assertion that the fund is unsatisfied with Moscow's economic policy and will not extend a loan to Russia.

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"Mr. CAMDESSUS is eager to score an easy victory and make us do what we cannot," MASLYUKOV said. He noted that the IMF wants Russia to set up trading and forwarding organizations in the gas industry.

Business

Sidanko Bankruptcy Delay Hurts BP Amoco

· A Moscow regional arbitration court on Tuesday declined to endorse the appointment of Arthur Andersen as an external bankruptcy manager for Russian oil company Sidanko, in which BP Amoco holds a 10 percent stake. The court also delayed insolvency hearings until May 18th. The decision ends hopes of a swift and orderly bankruptcy proceeding that would allow Sidanko to quickly restructure its debts and seek new capital. It sets back efforts by BP Amoco to salvage its $571 million investment and the government's drive to attract foreign money into the oil sector. The delay pins BP Amoco against Sidanko's largest shareholder, Vladimir POTANIN's Interros financial and industrial group. Interros was against the appointment of an external manager, but a creditor's meeting in February overwhelmingly voted for Arthur Andersen. Head of research at United Financial Group Steven O'SULLIVAN said, "This is going to escalate into a big fight." Spokesman for BP Amoco Howard CHASE said, "In our view and the view of the major creditors, it is vital for the restructuring and investor confidence in Russia that this process is independent, transparent, and internationally credible." Sidanko's largest foreign creditors are Germany's Dresdner Bank and Greenwich Natwest. It's debts to foreign banks total more than $150 million.

SeverTEK Closes Operations In Komi

· According to the chief of the license division of the Komi Ministry of Natural Resources and Environmental Control Vyacheslav LYUTOYEV the SeverTEK private joint-stock company has stopped its operations in the Komi Republic. SeverTEK was founded in 1996 by the Finnish Neste company, French Elf Aquitaine, the administration of the Nenets Autonomous Area, and KomiTEK Oil Company, which owns the controlling shares. Elf Aquitaine sold its share to the Finnish partner last year which initially held 25 percent of stocks due to unprofitable reports. SeverTEK planned to develop an oil deposit

in the Usinsky district of the Komi Republic through 2001. It had also started operations in the Yuzhno-Shapkinsky deposit. American Occidental Petroleum company which operated in the Pechora district earlier pulled out of Komi, after investing $60 million to develop several oil deposits.

European Republics

Ukraine To Join CIS Parliamentary Assembly

· The Ukrainian parliament today voted to join the Commonwealth of Independent States (CIS) Interparliamentary assembly. In the vote 230 lawmakers backed the decision, passing the 226 votes necessary for approval. Parliament Speaker Alexander TKACHENKO believes Ukraine's entry into the Interparliamentary Assembly (IPA) will make it possible to remove obstacles to ratification of inter-state agreements.

Vagnorius Considers Resigning

· Lithuanian Prime minister Gediminas VAGNORIUS is considering resigning from his post due to, "serious accusations without either motives or facts" made by the state controller and the presidential administration. The Lithuanian Cabinet under Prime Minister VAGNORIUS has come under fierce criticism by the country's politicians and mass media for alleged corruption in connection with the status of the energy sector. Lithuanian parliamentary speaker Vituatas LANDSBERGIS expressed the hope that a government crisis will be avoided. LANDSBERGIS said Lithuanian President Valdas ADAMKUS and the parliamentary faction of the ruling Fatherland Union party agreed that, "No drastic steps will be taken" in the next few days and the issue of dismissing the government will not be raised. However, he said that VAGNORIUS has the right to "mull over [his] resignation as he has been insulted and defamed." The Cabinet has launched an investigation into whether any powers were abused in the Lietuvos Energija saga.

South Caucasus & Central Asia

Berezovsky Tours Six CIS States

· Commonwealth of Independent States (CIS) Executive Secretary Boris BEREZOVSKY met with Georgian President Eduard SHEVARDNADZE on the first leg of his tour of six CIS capitals. He noted

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that Georgia's reluctance to renew the CIS Collective Security Treaty is an indication of its inadequacy and therefore a problem for the CIS as a whole, RFE\RL Newsline reported. Georgian Foreign Minister Irakly MENAGARISHVILI said that Georgia is prepared to help revise the treaty and may extend its membership, if those revisions meet its needs. SHEVARDNADZE and BEREZOVSKY also discussed the repatriation of Abkhazia by ethnic Georgian refugees. The President stressed that the security guarantees offered by Abkhazia are insufficient.

BEREZOVSKY also met with Armenian President Robert KONCHARYAN in Yerevan and discussed the creation of free trade zones, an initiative proposed in 1994. BEREZOVSKY said that the most acceptable model for the CIS is the European Union and that the former Soviet Union is totally unsuitable in that respect. He rejected the argument that the viability of the CIS depends on member-states continued participation in the CIS Security Treaty.

Turkish Military Visits Georgia

· A delegation of the Turkish Armed Forces General Staff led by commander of the Special Troops Lieutenant-General Engin ALAN is in Tbilisi to coordinate a draft agreement on the Turkish repairs and construction works at several sites of the Georgian Defense Ministry. A related protocol will be signed on March 4th. ALAN told Georgian Deputy Defense Minister David KATAMADZE that Turkey was interested in developing the military cooperation with Georgia of a level and character to be a model for the bilateral cooperation in other spheres. Under last year's agreement of the Georgian Defense Ministry and the Turkish Armed Forces General Staff, Turkey allocated $5.5 million for the repairs and construction works, KATAMADZE said. The money will be used to rebuild the training centers in Gori and Kodzhori, to build a hotel of the Georgian Defense Ministry in Tbilisi, and develop shooting grounds of the Military Academy. The Turkish delegation will stay in the Georgian capital for three days and visit several defense and industrial sites.

Chevron Resumes Caspian Oil Shipments

· US oil company Chevron has resumed crude oil shipments from Tengiz oil field in Kazakhstan through Azerbaijan and Georgia. Exports through the corridor were halted a month ago, while Chevron negotiated with Azerbaijan and Georgia for lower transit fees. Georgia reduced its oil transport fee from $7.75 to $5 per ton. Azerbaijan cut the tanker fee from $6 to $5.30 per ton and loading fees from $0.50 to $0.35. Head of Azeri state marine shipping company Casper Nazaket PANAKHOVA said, "Last night Casper began receiving tankers with Kazakh crude from Chevron, which were cut at the beginning of February, when Chevron raised the question of lowering transport tariffs." Chevron exported 2 million tons of crude oil through Azerbaijan and Georgia in 1998 and said it wants to increase that to 5 million tons this year. The oil is first shipped in tankers across the Caspian and then carried by rail to Georgia's Black Sea port of Batumi.

Kazakh, Japan Prospect For Reserves

· Kazakh national oil company Kazakhoil and the Japanese National Oil Corporation on Monday signed an agreement to begin joint prospecting for oil and gas reserves in Kazakhstan. Under the terms, the Japanese corporation will invest $50 million during the next three years to prospect in three different areas. Kazakhoil was nominated by the Kazakh government to take charge of the project and the Japanese National Oil Corporation pledged to ensure financial support. A disbursement of $15 million has been envisaged to carry out geophysical research in the Mangistausky region and in the northeast of the coastal Caspian shelf. Next year another $25 million disbursement for this purpose is expected, $10 million of which will be spent on research in the area of the Aral sea under Kazakhstan's jurisdiction in the year 2001. Vice president of the Japanese National Oil Corporation Masami OSIDZAKA said at a meeting with Kazakh Prime Minister Nurkan BALGIMBAYEV that financing and studies would begin as soon as the agreement was signed.

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

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