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

Tuesday, April 13, 1999

began, IVANOV met with US Secretary of State Madeleine ALBRIGHT, who attempted to get Russia to support NATO objectives and reverse ethnic cleansing. The US hopes that Russia will use its Serbian ties to open channels with Belgrade. ALBRIGHT and IVANOV failed to agree on the make-up of the possible international force, but agreed to continue working together. First Deputy Foreign Minister Alexander AVDEYEV said, "We believe a solution is unthinkable without Russia and our efforts." Comment: Russia's role should be negotiating serious concessions from Belgrade and delivering Slobodan MILOSEVIC to the International Tribunal on war crimes of genocide.

Duma Postponed Impeachment Debate

· Russian State Duma faction leaders on Monday decided to postpone the debate on the impeachment of President Boris YELTSIN until mid-May. YELTSIN had called on the Duma to go forward with the vote scheduled for April 15th or drop the impeachment motion altogether. The President frustrated by the Duma's disobedience said that the postponement was part of a strategy to keep him under constant political attack. He said, "They keep postponing it, looking for a more convenient time in an attempt to pinch the President. They will not succeed." Duma leaders led by speaker Gennady SELEZNYOV suggested that the vote be put off while YELTSIN is leading Mos-cow's opposition to NATO air-strikes in Yugoslavia. The Communists initiated the procedure and are now trying to force the Duma to change

Russian Federation

Politics

Yugosalv Votes To Join Rus-Belarus Union

· The Yugoslav Parliament Monday voted almost unanimously with only six abstentions to join the Russia and Belarus alliance. Russian Foreign Minister Igor IVANOV said, "Russia looks favorably on the idea of Yugoslav participation in the union between Russia and Belarus." He noted that the ministry had been ordered to study the issue. Although Yugoslavia may be counting on its Salvic ties for military assistance, Russia has said that being admitted to the union will not automatically mean military aid. Moscow has told Belgrade that granting membership will take time, probably even longer than the NATO operation will last. The union calls for military cooperation, but also envisioned extensive political and economic ties, including the possibility of a single currency. On Friday, President Boris YELTSIN warned NATO against dragging Russia into war and said that the alliance's actions could lead to a wider European or world war. He condemned the NATO raids, but said that Russia won't get involved militarily or supply Yugoslavia with weapons. Russia instead has suspended all contacts with NATO and has threatened to withdraw its peacekeepers from Bosnia and send more naval ships to the Mediterranean. The idea of expanding the union is popular among Russian and Yugoslav communists and hard-line nationalists, who regret the breakup of the Soviet Union. Moscow Mayor Yuri LUZHKOV expressed support for a three-country union. He insists that it should occur after the end of the Balkans war, adding that otherwise it would mean Russia is voluntarily involved in the crisis, which will trigger another round of military conflicts in the region.

Today in Oslo for the time since NATO airstrikes

Today's News Highlights

Russia

Foreign Banks For Extension

NIKoil Aquires Investment Group

European Republics

NATO To Name Candidates?

Ukraine CB To Lower Rates

Ukraine Cos. Launch ADRs

South Caucasus & Central Asia

Brownback On Georgia Reforms

Turkey To Add More Documents

Chirag Producing 95,000 BPD

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April 13, 1999

Intercon's Daily

the vote from a secret to an open ballot. They failed on Friday to muster a simple majority needed for the change. Communist Party leader Gennady ZYUGANOV vowed to raise the issue again later this month. The impeachment motion, which requires two-thirds majority in both houses of parliament and approval of Russia's Supreme and Constitutional Courts, is considered likely to fail. However, with the President's frequent illness, economic turmoil, and rising Cold War rhetoric surrounding NATO aggression in Kosovo, his opponents may be giving YELTSIN supporters more time to review the President's actions as Russia walks a thin line between Slavic loyalties and the need for international funding.

Economy

Ruble = 24.96/$1.00 (NY rate)

Ruble = 24.96/$1.00 (CB rate)

Foreign Banks Call For Deadline Extension

· Foreign banks holding billions of dollars of frozen Russian treasury debt have called on the Russian government to extend its deadline for responding to its proposed restructuring plan. They reiterated their displeasure with Russia's plan announced three weeks ago, saying that the terms are worse than what was offered in December. At that time, Russia said it would provide $550 million of hard currency reserves to repatriate proceeds at 11 monthly auctions. That offer has been reduced to only $200 million at four monthly auctions beginning this month. One banker said that this Thursday's deadline for tendering debts is too soon for banks to make up their minds. He also pointed out that the consequences for not participating in the tender still have not been clarified. A statement signed by the 19 bank committee which holds $15 billion of the Treasury bills and bond securities said, "Subsequent actions to implement this announcement are incomplete and contain terms materially worse than those indicated by the December 12th announcement." Russia has also failed to produce a list of permitted uses for the blocked rubles. A list of banks authorized to hold rubles for foreign investors has been abolished without an indication of what will replace it. The statement added that Russia should take steps to permit the bondholders to come up with a "voluntary restructuring" of the debt. Last week, the Finance Ministry said that holders of 92 percent of domestically-held debt and 36 percent to 37 percent of

foreign-held debt had accepted its terms. In February, Deutesche Bank accepted the Russian terms on behalf of its proprietary and client holdings, while Chase Manhattan Bank committed its own holding, but not its clients' to the proposed restructuring deal.

Generalov To Visit Iran

· Russian Fuel and Energy Minister Sergei GENERALOV departed today on a four-day official trip to Iran. He will meet with Iran's President Mohammad KHATAMI, Oil Minister Bijan ZANGANEH and Energy Minister Habibollah BITARAF. Topics on the meeting's agenda were not disclosed. GENERALOV will visit a refinery and petrochemical plant in Isfahan in central Iran. Russia has joined oil output cuts proposed by the Organization of Petroleum Exporting Countries to raise sagging world oil prices, although it is not a member of the cartel.

Business

NIKoil Acquires Strategic Investment Group

· NIKoil Investment Banking Group, the diversified Moscow based commercial bank and investment company with LUKoil as its main client, announced Monday that it has acquired the Strategic Investment Group, a direct investments assets manager and merchant bank. Financial details of the acquisition were not disclosed. Strategic Investment Group was founded and run by American financial manager Jack BARBANEL. Under the NIKoil umbrella the Strategic Investment Group will be renamed the NIKoil Strategic Investment Group and will be responsible for developing Private Equity Asset Management and Merchant Banking Activities. NIKoil said that its acquisition follows its strategy of developing high quality financial capabilities in the midst of the Russian economic crisis. It believes that the economic downfall has provided the Group with an opportunity to build and position it for the coming economic improvement and expansion. President of NIKoil, Mr. TSVETKOV said, "We have survived a very difficult financial and economic market environment when others did not. The main reason for our success has been a well thought out long-term strategy and high caliber professionals, who also understand this market." BARBANEL said, "We are very happy and excited to join forces with NIKoil. Our investment approach and philosophies complement each other very well."

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Privatization List Presented To Primakov

· Russian Federal Property Fund chief Igor SHUVALOV on Monday said that the government plans to sell off as much as 1,200 companies in 1999. A list of these companies has been submitted to Prime Minister Yevgeny PRIMAKOV for final approval. He offered no details of the planned privatization. It is believed that the government may sell 25.5 percent of Russian gas giant Gazprom and shares in the country's biggest oil producer LUKoil. The government's telecommunications holding company, Svyazinvest, will not be on the list. The company holds majority stakes in all but two of Russia's regional telecommunications monopolies and in Rostelekom, the long distance carrier monopoly. Russian Federal Property Minister Farit GAZIZULLIN said the government privatized 2,583 companies in 1998, down by a third from 1997.

Tuesday Tid-Bit

Moscow Snubbs Lewinsky's Book Tour

· The Russian publishing house which had been organizing former White House intern Monica LEWINSKY's planned book tour, announced on Friday it was canceling the trip. The reason for the cancellation of a trip promoting Monica's Story is Russia's opposition to NATO airstrikes on Yugoslavia. Spokeswoman for Vagrius publishing house said, "One can hardly imagine that millions of citizens of Russia would give Ms. LEWINSKY a proper welcome under the circumstances." She added, "The smashed glass outside the American Embassy in Moscow and the numerous protests...make it clear that the visit would come at the wrong time."

alliance and have expressed their full support for the bombing campaign in Yugoslavia. They view NATO membership as vital to ensuring they will never again come under Moscow's control. ULMANIS said, "Latvia still sees the collective security system as the only possibility for us."

Ukrainian Central Bank To Lower Rates

· Ukrainian President Leonid KUCHMA announced on Saturday that the Ukrainian Central Bank will lower its refinancing rate effective April 15th. Chairman of the Bank Alexander MARTYNENKO confirmed this. KUCHMA said this is necessary due to the troubled economy. The Central Bank had already lowered the refinancing rate on April 5th from 60 percent to 57 percent and the Lombard rate from 70 percent to 65 percent. The April 5th cut was the first in 1999. Last year, the Central Bank sharply hiked rates in response to Russia's financial crisis in August. In late 1997, the refinancing rate stood as low as 16 percent.

Several Ukrainian Cos. Launch ADRs

· Ukrainian chemical producer Stirol and pipe plant Nyzniodniprovsky Trubny Zavod launched level one American depository receipts (ADR) program with the Bank of New York on Wednesday April 7th. Head of Custody at ING Bank Ukraine Sergei BEREZHNY said one of Stirol's ADR represents five local shares, while one ADR of Nyzniodniprovsky Trubny Zavod represents six local shares. The legal advisor Baker & McKenzie said the Ukrainian companies had set no volume limits for their level one ADRs issues. Earlier, three Ukrainian companies, major oil and gas producer Ukrnafta, electricity generator Dniproenergo and major steel mill Azovstal, became the first in Ukraine to launch their ADR programs. Level one ADRs are issued on existing capital to give foreign investors access to underlying shares and raise liquidity.

South Caucasus & Central Asia

Brownback Compliments Georgian Reforms

· US Senator Sam BROWNBACK (Rep. Kansas) issued a statement on Friday congratulating Georgia on its democratic reforms. He said, "By weeding out the inherited corruption that was entrenched in the Soviet system, Georgia is setting an example for the other former Soviet countries to follow President

European Republics

Latvia Calls On NATO To Name Candidates

· Latvian President Guntis ULMANIS Monday urged NATO to announce the countries it may accept for membership when the security alliance holds its 50th anniversary summit in Washington this month. In an interview on national radio he said, "We consider that NATO should specifically name countries which could be taken in the event of further expansion, and Latvia [should be] among them." Latvia, Lithuania, and Estonia have signed a partnership pact with the US as a step toward NATO. All three Baltic States are pushing for inclusion in the

When you need to know it as it happens

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SHEVARDNADZE and the reformers in parliament are living up to their commitments, which will make Georgia a prosperous and free nation." He noted that the Georgian parliament has enacted a new commercial code, civil procedure laws, criminal laws, and tax laws. BROWNBACK said, "This combined with the active and sweeping measure of removing corrupt communist-era judges should work to insure a non-corrupt judiciary." He said, "In a civil society, the legal system should work for the society and not for the benefit of its authorities. Georgia's overhaul of their judiciary is a bold move in the right direction to insure long-term freedom and justice. Georgia has much for which to be proud." BROWNBACK is chairman of the Senate Foreign Relations Subcommittee on Near Eastern and South Asia Affairs, and is author of the Silk Road Strategy Act.

Turkey Fails To Meet Caspian Deal Deadline

· Turkey's Energy Minister Ziya AKTAS conceded on Monday that it will be unable to complete the multi-billion Caspian pipeline deal before national elections this Sunday, the Financial Times reported. He said that two more documents will be added to intra-government and host-government agreements for the Baku-Ceyhan pipeline. These include a turnkey agreement and an investment guarantee agreement, making the package four documents. Under the investment guarantee agreement, the Turkish government will offer guarantees that construction costs of the Baku-Ceyhan pipeline will not exceed $2.4 billion. The Turkish government and the international consortium Azerbaijan International Operating Company (AIOC) developing Caspian oil fields will meet in Ankara April 14th to 15th to make progress for the agreement. AKTAS said that the Turkish government has been unable to respond to a package submitted by the oil companies last Friday. Turkey and the US support the Baku-Ceyhan planned route and believe the pipeline will help stabilize the region and serve long-term US interests. The US has pressed Exxon, BP Amoco, and Unocal to support the pipeline. Most oil companies are reluctant to proceed with the project due to low

oil prices, cost of construction and development, and uncertainty over eventual oil reserves. Oil companies have demanded incentives and guarantees on cost overruns to make the project viable.

AIOC Says Chirag Field Producing 95,000 BPD

· Azerbaijan International Operating Company (AIOC) said that production at the offshore Azerbaijan Chirag oilfield has reached 95,000 barrels per day. AIOC had to cut Chirag's maximum output of 100,000 barrels per day by 50 percent a week ago because of the closure of the Baku-Grozny-Novorosiisk pipeline. This northern route, which is operated buy Russian pipeline company Transneft re-opened on Monday. The AIOC continued to send 50,000 barrels per day through the Baku-Supsa pipeline. An AIOC spokeswoman said, "We've been producing at 95,000 barrels per day since yesterday [Monday] and we may reach 100,000 barrels per day by the end of today or Wednesday." She pointed out that AIOC is pumping 60,000 barrels per day through the Georgian pipeline. The total 188,000 barrels per day being pumped through both pipelines is coming both from the Chirag oilfield and barrels stored at the Sangachal terminal on the Azeri Caspian Sea coast.

Balgimbayev Reviews Results Of Iran Trip

· Kazakh Prime Minister Nurlan BALGIMBAYEV is reviewing the results of his weekend trip to Iran in preparation for the upcoming summit meeting of the two countries scheduled Fall, 1999. The Prime Minister signed five important documents during his visit, including an agreement to renew an exchange crude oil contract, suspended in 1997. Iran confirmed its intention to purchase 200,000 tons of grain from Kazakhstan. BALGIMBAYEV said that Iran imports about 5 million tons of grain annually. The sides had not yet agreed on export prices and how to overcome high railway tariffs imposed by its neighbors. "We shall be working with the governments of both Uzbekistan and Turkmenistan on the railway problem so that our cargoes, our goods get to Iran." Iran welcomed a proposal on the transit of Iran's airplanes through Kazakhstan's airspace.

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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