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

Monday, April 12, 1999

Russian Federation

Politics

Impeachment To Be Postponed?

· Russian President Boris YELTSIN called on the Russian State Duma to go ahead with the impeachment vote scheduled for April 15th. Apparently confident that the motion on five charges will fail, he said he did not want the vote postponed. A Kremlin spokesman said that YELTSIN telephoned Duma speaker Gennady SELEZNYOV and reiterated his position that the issue should either be considered or dropped for good. Presidential press secretary Dmitry YAKUSHKIN said, "The President believes that to postpone this question means to create a seat of permanently smoldering tension" in society. Some deputies have suggested that the vote be postponed because of YELTSIN's opposition to NATO airstrikes in Yugoslavia. Leaders of various factions are meeting today to decide how to proceed. Liberal Democratic Party leader Vladimir ZHIRINOVSKY said his party would demand that the impeachment vote be postponed for at least three months. Prime Minister Yevgeny PRIMAKOV and Moscow Mayor Yuri LUZHKOV said the vote could further destabilize Russia's political situation. PRIMAKOV said, "this political gamble is irresponsible and dangerous. Apart from destabilizing society, it can provoke a serious political crisis. I'm unequivocally for Boris Nikolayevich YELTSIN to remain at his post for the entire constitutional term and flatly against early elections of both the President and the State Duma." A Duma commission has charged YELTSIN with instigating the 1991 Soviet collapse, improperly using force against legislators in 1993, launching a botched war in Chechnya in 1994, bringing the nation's military to ruin, and waging genocide against the Russian people by pursuing economic policies that have impoverished the country.

Attack On Maskhadov Thwarted

· On Saturday, Chechen police discovered and safely detonated two bomb, which were said to be part of a plot to assassinate Chechen President Aslan MASKHADOV. One bomb was found near the central square of Stariy Atagy, where hours later MASKHADOV gave a speech to thousands of supporters. The second bomb was found on a road between Stariy Atagy and Grozny. Presidential spokesman Maribek VACHAGAYEV said the bombs were part of a plan to kill MASKHADOV. If true, it would have been the second attempt on MASKHADOV's life since March. The President's opposition accuse him of being too friendly with Moscow. MASKHADOV was a leading rebel commander during the Chechen secession war in 1994-1996. In his speech, to 4,000 city administrative officials and Muslim leaders and 10,000 other supporters, MASKHADOV said, "We are going through hard times now. The enemy is within us, but it is invisible. We are one nation, we have one religion, but there is no accord between us."

Economy

Yeltsin Calls For Cuts In Tax Privileges

· Russian President Boris YELTSIN has called for a cut in the number of tax privileges in order to improve the tax system. He said that cuts should not be mechanical ones and, "it is important to resist the influence of lobbying groups." YELTSIN said, "Mass tax privileges for someone mean that

Today's News Highlights

Russia

State Oil Co. To Be Finalized

Russian Cosmetics On The Rise

European Republics

Rus-Belarus Exec Comm. Meet

Ukraine-PACE Leadership Meet

South Caucasus & Central Asia

Georgia On Aid Received

Martinelli Take Caucasus Tour

Iran-Kazakh Expand Relations

Karimov On Russian Bases

Politics-Economics-Business

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Monday

April 12, 1999

Intercon's Daily

someone else has to pay high taxes. To compete on the market with those who have such privileges, one has to conceal his incomes, there by slashing taxation. The Russian government must find new arguments which would persuade legislators to cut tax privileges. Main emphasis should be laid on granting tax privileges for priority economic activities." He said, "Some social groups should receive direct aid from the expenditure parts of the budgets of all levels instead of tax privileges." He added, "The Russian government has to work out clear criteria for the granting of tax privileges and submit them to the President together with other materials on the draft federal budget for 2000." YELTSIN has instructed the government to submit a draft federal budget for 2000 before July 1st. He wants each federal body of executive power to show what it hopes to achieve using the money it requests from the budget. He said, "Budget money should not be spared to the detriment of the poor. This is an obligatory demand and it will be under the President's constant control. It is necessary to continue the policy of providing purpose-oriented support for the least protected citizens whose income is below subsistence level, especially pensioners and the disabled."

Ruble = 25.09/$1.00 (NY rate)

Ruble = 25.03/$1.00 (CB rate)

Business

State National Oil Company To Be Finalized

· Russian Fuel and Energy Minister Sergei GENERALOV believes that a decree to establish a State National Oil Company may be issued today. On Thursday, he said, "A decision on this matter has been dragged out for almost four months and therefore, we should step up the process of formation of the State National Oil Company." GENERALOV said that the fifth largest oil producer, Tyumen Oil Company (TNK), cannot be incorporated in the newly created structure because of the absence of rational proposals from managers of the TNK company. A principle problem is the coordination with the shareholders—on the order of convertibility of shares of the TNK company into shares of the newly created holding, he said. The problem of incorporating Eastern Siberian Oil Company (VSNK), a branch company of the Sibneft has been resolved in principle, GENERALOV said. The Rosneft, Slavneft and Onako companies are expected to turn over their shares to

the State National Oil Company.

Meanwhile, TNK plans to produce 19.3 million metric tons (about 380,000 barrels per day) of crude oil this year down from 19.7 million metric tons in 1998 (about 395,000 barrels per day). Approximately 17.8 million tons will be produced by the company's main production subsidiary Nizhnevartovskneftegaz. Tyumenneftegaz is expected to produce 1.5 million tons. Output at the Western Siberian company is falling because of a Soviet-era practice of water injection, which boosts short-term outputs, but at the cost of longer-term production. TNK plans to use part of a $640 million loan it is seeking from the US Export-Import Bank to invest in technologies that could reduce the water content. The loan is expected to be signed by the end of April.

Domestic Cosmetic Lines Improve Market Share

· Since the financial crisis in Russia last August, domestic cosmetic produces have improved their market shares. They are taking advantage of the sharp rise in the price of imported Western cosmetics following the ruble's devaluation. NIZAR, once thought to be the emerging Russian Christian Dior attracting and accessible to high earning professionals, finds that its products have been driven off the shelves by a cheaper line called Silver Dew. Head of NIZAR Umar AKHSYANOV said that its lotions and creams called Blue Blood sold as high as $10 in Moscow and St. Petersburg. Its competitor Silver Dew has forced NIZAR to sell its Blue Blood at wholesale prices of $1. AKHSYANOV hopes that the switch to cheaper products will boost sales to $1 million a month by the end of 1999, from the current $250,000. According to the Association of Russian Cosmetics and Perfume Producers, before the crisis, Russian producers occupied one-third of the local market, now their share is between 40 percent to 45 percent. Marketing officials at Neva Cosmetics in St. Petersburg Yekaterina PAVLOVA explains, "People have switched from expensive foreign goods to cheap domestic cosmetics and its helps us to launch new products, occupy the niches which have been occupied by other producers." A report from COMCON media and market research shows that Russia women were ready to change products that did not change the appearance, such as shampoos, as opposed to mascara and lipsticks. Because of this domestic lines are expanding to include liquid soap, shampoos, body milk, and bubble bath.

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European Republics

Belarus Former Bank Chief Flees House Arrest

· Former director of the Belarus Central Bank Tamara VINNIKOVA fled her home Thursday where she was on house arrest and the police have now placed her on the wanted list. The Belarus Prosecutor's Office said police are taking all the necessary measures to find and apprehend the missing banker, including Interpol's assistance. VINNIKOVA was arrested in January 1997 on charges of power abuse. She spent some six months in prison and then placed under house arrest due to deteriorating health. Preliminary investigation into her case is being conducted. VINNIKOVA, also former chairwoman of the Belarusbank, is charged with issuing an order to conclude an contract between her bank and a foreign firm, though she was aware that it was loss-making. The Belarusbank suffered a loss of $1.6 million. There is also evidence that VINNIKOVA helped one of the commercial firms to receive a bank credit, which was never paid back. Other facts point to her involvement in significant embezzlement. The police have already searched the apartment of one of VINNIKOVA's lawyer Ludmila ULYASHINA. The Prosecutor's Office has also summoned her for testimony.

Rus-Belarus Union Discuss Economic Plan

· Under the chairmanship of Chief Administrative Officer Viktor STEPANOV, the Executive Committee of the Russia-Belarus Union held a conference in Moscow to discuss a program of economic cooperation between the two countries for the period of 1999 to 2008. The economic cooperation program was drafted by the ministries of economy of the two countries, taking into consideration proposals of scientific institutions, ministries, agencies, regions and enterprises, he said. Measures, which provide for the formation in the future of a union state, make up the backbone of the program. According to the Executive Committee's press secretary Alexander SAPSAY, the program consists of four parts: the situation with the economic development of the Rus- Belarus Union, the principal objectives and tasks of the program, further development of economic integration, and the mechanism of the implementation of the program. The next session of the Russia-Belarus Union Executive Committee will be held in Minsk on April 13th.

Ukraine-PACE Meeting Ends Up Mixed

· Ukrainian President Leonid KUCHMA met with Chairman of the Parliamentary Assembly of the Council of Europe (PACE) Lord Russell JOHNSTON in Kiev on Thursday. During the meeting KUCHMA highly appraised the activity of the Council of Europe and its Parliamentary Assembly, as well as called for the further deepening of cooperation with this influential international organization with Ukraine. The PACE chairman was informed of activities of all branches of power in Ukraine in the implementation of the obligations assumed by Ukraine when joining the Council of Europe. JOHNSTON noted Ukraine's important role in the European security system and the activities of regional organizations and forums, particularly with PACE. He complimented Ukrainian efforts to meet its obligations to the Council of Europe, but said it must step up efforts to abolish capital punishment. JOHNSTON stressed the need to develop all-round cooperation between the Council of Europe and Ukraine as an important factor for the process of European integration. He criticized the parliament for denouncing NATO strikes in Yugoslavia, without mentioning Serb repression against Kosovo Albanians. His comments were interrupted by indignant shouts from left-wing deputies.

South Caucasus & Central Asia

Aid To Georgia Totals $1.5 Billion

· Georgian President Eduard SHEVARDNADZE in an interview with National radio today noted that since 1992, western countries-donors and international financial organizations have given humanitarian aid, technical support, easy credits and grants to Georgia to the total sum of $1.5 billion. SHEVARDNADZE said that the US, as well as Great Britain, Germany, France, Japan and Netherlands rendered especially considerable aid to Georgia. The Georgian President noted that Western countries' aid, which testifies to their political support of the Georgian authorities, has made it possible to work on restoring the economy, greatly damaged as a result of wars and devastation. The President said countries-donors intend to continue rendering aid to Georgia, the authorities of which will use this aid for developing the priority branches of the economy: power engineering, transport, agriculture, processing industry, tourism, health care and education.

When you need to know it as it happens

Politics-Economics-Business

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Intercon's Daily

Martinelli Takes Caucasus Tour

· Italian deputy foreign minister Valentino MARTINELLI is completing a Caucasus tour of Azerbaijan, Georgia, and Armenia. In Azerbaijan, he held talks with Azeri President Geidar ALIYEV and Foreign Minister Tofik ZULFUGAROV. The Foreign Minister stressed the importance of Italian participation in exporting Azerbaijan's Caspian oil reserves. ZULFUGAROV and MARTINELLI also discussed measures Azerbaijan should take in order to be granted full membership in the Council of Europe. In Tbilisi on Saturday, MARTINELLI met with Georgian President Eduard SHEVARDNADZE, State Minister Vazha LORDKIPANIDZE, and Foreign Minister Irakly MENAGARISHVILI. The Italian deputy foreign minister said that Italy is interested in cooperating with Georgia to expand sea and air communications between the Mediterranean and Black Seas. Talks with MENAGARISHVILI concentrated on bilateral political, economic, and cultural relations. Georgia opened an embassy in Rome in 1994, and the opening of an Italian embassy in Tbilisi is scheduled for the second half of 1999. In Yerevan, MARTINELLI met with Armenian President Robert KOCHARYAN, Prime Minister Armen DARBINYAN, and Foreign Minister Vartan OSKANIAN. Their talks focused on bilateral relations, Armenian relations with Russia and Turkey, and the Nagorno-Karabakh conflict. Italy will open an embassy in Armenia this year.

Iran, Kazakhstan To Expand Cooperation

· Kazakhstan Prime Minister Nurlan BALGIMBAYEV ended a two-day trip to Iran on Sunday. After meeting with his counterpart and Iranian President Mohammad KHATAMI, both nations vowed to expand bilateral cooperation. Iran and Kazakhstan underlined the need to fully implement the agreements already reached. The two sides signed several agreements on customs, oil and gas cooperation during BALGIMBAYEV's stay in Tehran. In a joint statement, both nations stressed the importance of the Caspian Sea for regional peace and stability. They expressed satisfaction with the efforts of the five littoral states, which also include

Turkmenistan, Azerbaijan and Russia, to converge stances to the sea's legal regime. Kazakhstan voiced its willingness to use various routes to export its gas and oil to world markets and praised Iran for setting up infrastructures necessary for the transportation of goods, oil and gas via its territory. Iran and Kazakhstan will continue to work within the framework of the UN, the Organization of the Islamic Conference and the Economic Cooperation Organization.

Karimov Concerned Over Russian Base

· Uzbek President Islam KARIMOV on Thursday expressed concern over the possible presence of Russian military bases in Tajikistan. He said, "Why should there be another base, the more so as this country is living through a period of establishing peace when the warring sides are trying to find a common language. What is a military base for then? Against who it is? Whom or which country it will be a threat to? The situation is coming to resemble that in the Caucasus. So far these are open questions." KARIMOV said, "In talks with [Tajik President] Emomali Sharipovich [RAKHMONOV] I said once again that your right, as a sovereign state, is to come to any agreement , including a military one...But when we are talking about a military base, and when the Russian Defense Minister tells Russian television stations about setting up a military base, then a number of questions arise: Against whom is the base directed? Why is it being set up?" He added, "Being aware of a new military base in Tajikistan, other countries, such as Afghanistan, will evidently take appropriate measures. Under these conditions, there will evolve a serious threat to stability in the entire region." KARIMOV cautioned the leaders to think twice before signing an agreement for a Russian military base in Tajikistan.

RAKHMONOV said that the main purpose of any base that is set up would be to repel the threat from Afghanistan. Russia already has around 20,000 troops in Tajikistan with more than half on its southern border with Afghanistan and the rest in peacekeeping battalions.

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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