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, April 14, 1999

Analyst believe the move shows YELTSIN wants to maintain coordination between the nations' power institutions and to stabilize the political situation prior to parliamentary elections in December. The President also appointed Presidential Office Director Alexander VOLOSHIN and Government Communications Bureau Director V.P. SHERSTYUK to the Council by decree. Vladimir PUTIN, Secretary of the Security Council and Federal Security Service chief, announced that the Security Council are meeting today to discuss the situation in the North Caucasus with regard for the latest tragic developments in the region, involving the killing of policemen.

Honest And Trusted Russian Leaders?

· A poll conducted on March 22nd by the All-Russia Center for Public Opinion Study asking respondents to name five or six trustworthy Russian politicians, shows that Russians most trust Prime Minister Yevgeny PRIMAKOV. His popularity grew from 24 percent in November, 1998 to 28 percent. PRIMAKOV is followed by Communist Leader Gennady ZYUGANOV and Yabloko leader Grigory YAVLINSKY were tied with 18 percent. However ZYUGANOV's popularity dropped from 20 percent in November, while YAVLINSKY's rose by 1 percent. Moscow Mayor Yuri LUZHKOV earned 17 percent (compared with 16 percent in November), Krasnoyarsk Governor Alexander LEBED with 11 percent (down from 17 percent), and former prime minister Sergei KIRIYENKO with 6 percent (3 percent). Liberal Democratic Party leader Vladimir ZHIRINOVSKY did not gain

Russian Federation

Politics

Chernomyrdin Appointed Presidential Envoy

· Russian former prime minister and leader of the Our Home is Russia Viktor CHERNOMYRDIN has been appointed special envoy of the Russian President for the settlement of the Yugoslav conflict. A decree to this effect was signed by President Boris YELTSIN today. YELTSIN rejected an offer from former Soviet Leader Mikhail GORBACHEV to help negotiate peace on behalf of Russia. CHERNOMYRDIN will seek a political settlement of the Kosovo conflict that will satisfy both sides. He said that, "Russia has a chance to stop the bloodshed in Yugoslavia. And it can be done only now—at the stage when there are neither winners nor losers." According to CHERNOMYRDIN, Moscow should step up its diplomatic efforts "in all the directions" to stop NATO's bombing of Yugoslavia and sit the belligerent parties down to the negotiating table. First deputy head of the presidential administration Oleg SYSUYEV said, "Viktor CHERNOMYRDIN has a great political experience and enjoys broad international recognition. Therefore, it is quite logical that Boris YELTSIN's choice was to entrust this task to CHERNOMYRDIN." Many predicted CHER-NOMYRDIN's return to government to counter the influence of Prime Minister Yevgeny PRIMAKOV. However, Presidential spokesman Dimitry YAKUSHKIN stressed that CHERNOMYRDIN is not in a Cabinet post.

New Federal Security Council Appointments

· Russian President Boris YELTSIN on Tuesday appointed Russian State Duma speaker Gennady SELEZNYOV and Federation Council chairman Yegor STROYEV to the Federal Security Council of Russia. This is the first time that both chairmen of the houses of parliament were admitted into the council.

Today's News Highlights

Russia

Banks Key To New Lending?

Berezovsky Warrant Canceled

European Republics

Williams Continues Negotiations

Lith-Latvian Foreign Mins. Meet

South Caucasus & Central Asia

Baku-Supsa Inauguration Sat.

AIPC Wins Kazakh Oilfield

New Kyrgyz Prime Minister

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April 14, 1999

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ground from the poll in November, remaining at 6 percent. State Duma speaker Gennady SELEZNYOV earned only 5 percent (down from 6 percent) and former deputy prime minister Boris NEMTSOV unchanged at 4 percent. Kemerovo governor Aman TULEYEV and Popular Rule party leader Nikolai RYZHKOV tied with 3 percent (2 percent), former prime minister and leader of Our home is Russia Viktor CHERNOMYRDIN earned 3 percent, Federation Council speaker Yegor STROYEV received 2 percent (1 percent in November).

Economy

Ruble = 24.9/$1.00 (NY rate)

Ruble = 24.85/$1.00 (CB rate)

Ruble = 26.8/1 euro (CB rate)

Banking System Key To New Lending?

· Deputy Vice President of the European Bank for Reconstruction and Development (EBRD) David HEXTER said that improvements in regulations and legal basis of Russia's banking system are likely to be conditions for renewed lending by international financial institutions. The EBRD has been working with the International Monetary Fund (IMF) and World Bank to find ways to rescue Russia's banking system. HEXTER pointed out that only three of Russia's 18 large private sector banks are solvent. The three lending institutions have established a task force with Russia's Central Bank to outline steps to improve the bank regulatory system. This would require new laws on bankruptcy and supervision of banks. He said, "If an agreement is reached with the IMF, there will be tough conditionally to implement that program." The EBRD, IMF, and World Bank are also developing a program to restructure the banking system, leaving the country with core banks that can handle basic payment and transfer operations. Senior Western bankers believe that parliamentary elections in December and presidential elections in 2000 will make it unlikely that tough decisions regarding which banks to save will be made soon. HEXTER said that the key problem with for Russia is the lack of confidence in the banking system due to the financial crisis last August. The EBRD has determined that approximately $70 billion in cash is held by Russians outside of the banking systems, with an equal amount held abroad. He said, "If they could mobilize a third of this, it would go a long way to solving their financial problems. The only way to

do so is to focus on a core number of banks with a deposit insurance guarantee from the government."

Business

Berezovsky's Arrest Warrant Canceled

· The Prosecutor General's Office announced today that it has canceled an arrest warrant for oil-to media business tycoon and former executive secretary of the Commonwealth of Independent States Boris BEREZOVSKY. Deputy Prosecutor General Mikhail KATYSHEV said he canceled the warrant because BEREZOVSKY has promised to return to Russia to face investigators. The office has also recalled the warrant for BEREZOVSKY's arrest that was sent to the international political organization Interpol. The wanted businessman said that he did not fear arrest and would return to Moscow from France later this week. BEREZOVSKY has been charged with setting up a Swiss Company to launder hard currency earnings from Russia's largest airline Aeroflot. He believes that Prime Minister Yevgeny PRIMAKOV thought up the money-laundering charges to influence President Boris YELTSIN, the media, and Russian secret services. Russian media has reported that the warrant, issued just days after BEREZOVSKY left Russia, was an attempt to keep the influential businessman from returning to Russia in time to testify against senior government officials who allegedly have stakes in his business deals.

Lukoil Continues Development Of Yalama Field

· Russian oil company LUKoil's representative to Baku Pavel KAUFMAN said that LUKoil will continue exploration work on its offshore Yalama Caspian oilfield. He said, "LUKoil is satisfied with the results of the interpretation of the seismic data on the Yalama structure." LUKoil released a statement saying that the data points to, "the existence of a major oil deposit, possibly the largest ever discovered on the Caspian shelf." LUKoil shares a 60 percent stake in the 1,000 square kilometer structure with US oil company Arco, while the remaining 40 percent is owned by Azeri state oil company Socar. LUKoil and Arco has set up a joint venture, LUKArco to explore Yalama. LUKArco vice president Rim BAGMANOV last month said that the company would need to find reserves of at least 70 million tons of crude for the shareholders to approve continuing work. Under a clause in the Yalama production sharing agreement, signed in Moscow in 1997,

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LUKArco can leave the deep-water block without drilling a single well. One oil specialist commented that, "LUKoil probably wants to continue with this project for political reasons. It would look bad for them to leave this project as they have such a large presence here [Baku]." LUKArco also hold five percent of Kazakhstan's giant Tengiz oilfield and a 12.5 percent stake in the Caspian Pipeline Consortium. LUKoil is also a member of the BP-Amoco led Azerbaijan International Operating Company, where output is up to 100,000 barrels per day.

Duma Approves PSA on Sakhalin Oilfield

· The Russian State Duma today in a vote of 310 to 8 with 2 abstentions to permit production sharing in the Sakhalin-3 oilfield. This means that rights to use this shelf oil field can be sold to different buyers. The law adopted bears the title On Parts of Deposits for Which the Right to Use Them Can Be Granted on Conditions of Production Sharing, specifically on Kirinsky Prospective Block of the Sakhalin-3 Project. It allows for exploration, prospecting, and production of oil products in Sakhalin to a variety of firms. The Kirinsky oilfield is located in Russia's territorial waters and continental shelf off the Sakhalin Island in the eastern Sea of Okhotsk. The law must also be approved by the Federation Council. It was drafted by the Duma committee for industry, construction, transportation and power engineering.

mid-1998, has been delayed several times due to concerns over financing of future investments at Mazheikiu. Due to the approval, the government must submit an amendment to the parliament for the law on privatization of the oil sector, which requires that no Mazheikiu Nafta shareholders can hold over 33 percent. Mazheikiu Nafta lost 19.4 million litas ($4.85 million) earlier this year when deliveries of crude to the plant were discontinued. The oil refinery was idle for 16 days.

Latvian-Lithuanian Foreign Ministers Meet

· Valdis BIRKIVS and Algirdas SAUDARGAS met in the Lithuanian coastal resort of Palanga to discuss bilateral relations and international issues. BIRKIVS said negotiations between Latvian and Lithuanian delegations on the common maritime border will continue at the end of the month. He said he hopes that an agreement will be signed before the end of this century but noted that he could give no guarantees, RFE\RL Newsline. Bilateral talks on the Lithuanian-Latvian maritime border began some five years ago, with the main bone of contention being offshore oil deposits.

South Caucasus & Central Asia

Georgia, Azeri, Ukraine Begin Joint Exercises

· The first ever joint military exercises conducted by troops of Azerbaijan, Georgia and Ukraine have begun at Krtsanisskoye test-range not far from Tbilisi. The exercises, to be held in several stages and locations, will continue until April 17th. An agreement on the exercises was reached during a meeting between defense ministers of Georgia, Ukraine and Azerbaijan held in Tbilisi in March. On Friday, the troops from Georgia, Azerbaijan, and Ukraine will perform a mock security action to ensure the safety of the Baku-Supsa oil pipeline.

In his national address on Monday, Georgian President Eduard SHEVARDNADZE called for firm safeguards against breaches of security. "At the upcoming NATO summit in Washington in late April, I am going to raise the issue of the necessity to set up firm security guarantees in the contemporary world." He noted that the mechanism of providing security is far from perfect, and the Yugoslavia events result from that imperfection. The UN Security Council had failed to show political will enough to put in motion its

European Republics

Williams-Mazheikiu Nafta Talks Approved

· The Lithuanian government on Monday has received approval to carry out negotiations with the US energy group Williams to sell it a 66 percent stake in oil concern Mazheikiu Nafta. Economics Minister Vincas BABILIUS said that the state defense council, which includes the President and Prime Minister, had given the approval and stated that the sale is in Lithuania's strategic interests. In 1998, Williams signed an intent protocol with the government to take a 33 percent stake for $150 million. He said the price for the additional 33 percent shares will be set after an evaluation by international experts, but declined an further comment. Spokesman for Williams Lithuania Randy MAJORS said, "We are currently holding talks [with the government] and should see some progress toward the end of this week." The original deal with Williams agreed in

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peace-enforcement vehicles, and if the council does not wake up to reality, dismal consequences may follow, SHEVARDNADZE added.

Baku-Supsa Pipeline Inauguration On Saturday

· The Baku-Supsa pipeline will formally be inaugurated on Saturday. The ceremony will be attended by 500 foreign officials, 50 media representatives, 350 Georgian officials, Richard MORNINGSTAR, US Ambassador and special advisor to the President and the Secretary of State on Caspian energy issues as well as Jan POLENSKI of the Commerce Department. Intercon sources report that on Friday, MORNINGSTAR will testify to chairman Revaz ADAMIA's parliamentary Defense Committee on the security conditions of the pipeline.

Armenian Air Defense System Operational

· Today, Armenia's military held a celebration to market the commencement of Armenia's air defense troops' operational duty as part of the joint air defense system of the Commonwealth of Independent States (CIS). Air Colonel-General Anatoly KORNUKOV, Commander-in-Chief of Russia's Air Force, and a Russian military delegation attended the ceremony, which will finalize the process of integrating Armenia into the CIS joint AD system which had been restored under the Collective Security Treaty. Following the ceremony the air-defense system of Armenia and the air force of Russia began joint combat duty to protect the CIS' airspace. KORNUKOV stressed that his visit has no direct relation to NATO's aggression in the Balkans. There is not any relation here, although it may logically ensue because this track is not indifferent for Russia. The Russian air force is on its routine combat duty, with account for the international situation. Azerbaijan, which is not renewing its membership in the Collective Security Treaty, has criticized Russia's close relations with Armenia's military. Russia is a participant of the Organization of Security Cooperation in Europe committee which is negotiating peace between Armenia and Azerbaijan on the Nagorno-Karabakh conflict.

Kazakhstan Award AIP Corp. Gas Field Project

· US oil firm American International Petroleum Corp. (AIPC) on Tuesday announced that the Kazakhstan government has awarded it 100 percent interest in the Shagyryl-Shomyshty gas field development project. The field holds an estimated 1.14 trillion cubic feet of proven recoverable sweet dry gas reserves. Chief executive officer George FARIS said, "The development of the Shagyryl-Shomyshty gas field will allow the company to begin generating cash flow from its Kazakhstan holdings, which is critical in this tight oil market." He added, "Sales agreements currently under negotiations can move forward now that we have the means to officially commit to anticipated production from the field." AIPC said that delivery of initial gas could begin within 12 months from initiation of the pipeline construction and drilling program because of the short distance from existing sales facilities and the minimum treatment required to sell the gas. The US company is involved in oil and gas exploration and development in Kazakhstan, while in America its operations include refining, marketing, and transporting refined petroleum products.

New Kyrgyz Prime Minister Appointed

· Kyrgyz President Askar AKAYEV has appointed the governor of Osh oblast Amangeldi MURALIYEV as the nation's new Prime Minister, replacing the late Djumabek IBRAIMOV. MURALIYEV since 1991 has served as state secretary for economics, Finance Minister, chairman of the State Property Fund, and Deputy Prime Minister for Industry. He was appointed Osh oblast governor three years ago. The upper chamber of the Kyrgyz parliament must approve MURALIYEV's appointment at its next session on April 20th. The Kyrgyz media has criticized the latest appointment. Aalam said MURALIYEV will only strengthen the tension between the southern and northern regions of the country. It also characterized MURALIYEV as "too gentle" to conduct a ruthless crackdown on corruption, while the opposition Res Publica weekly described him as "indecisive" and not capable of standing up to the President.

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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