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

Thursday, April 15, 1999

"back on board" was a priority of the alliance. He noted that a meeting of the Group of Eight plus Russia will be held soon followed by a meeting of the UN Security Council. He added that the main differences over NATO's five demands comes down to the nature of any international presence in Kosovo. Russia wants the international force to be non-military and not led by NATO. British officials insist that it must be a NATO and not UN led force. Alliance leaders hope that UN Security Council, of which Russia is a member, will endorse the force.

CHERNOMYRDIN met German Ambassador to Russia Ernst-Joerg VON SCHUDNITZ on Thursday to discuss the German plan for settling the Kosovo crisis by peaceful means. The German Foreign Ministry's plan envisages a 24-hour suspension of NATO bombing raids on Yugoslavia if MILOSEVIC begins to withdraw the Serbian troops and units from Kosovo. Disarmament of the Kosovo Liberation Army must be started simultaneously. Parallel with this, vanguards of the international peace-making force, called upon to ensure the repatriation of refugees, must be moved into Kosovo.

While the US has rejected this proposal, CHERNOMYRDIN believes it deserves to be considered. He said, "As long as bombings are under way, it is senseless trying to come to terms." On Tuesday, he is going to meet the leadership of the State Duma, the Federation Council, and other ministers in an attempt to help draw up a common stance on the conflict.

Russian Federation

Politics

Search For Peace Raises Tension In Gov't

· Political analysts believe that President Boris YELTSIN's appointment of Viktor CHERNOMYRDIN as the presidential envoy to the Kosovo conflict was a purposeful move to derail PRIMAKOV's own high profile peace initiative. This follows YELTSIN's practice of undermining top government officials, who he perceives are a threat to his power. PRIMAKOV over the weekend appeared on Russian television to justify the actions of his government. This was a response to YELTSIN's statement that PRIMAKOV was, "useful to us at this stage" and then added, "later we will see." The tightening of ties between CHERNOMYRDIN and YELTSIN and the rising tension between PRIMAKOV and YELTSIN adds to continued speculation of a government reshuffle aimed at replacing CHERNOMYRDIN and ousting senior Communist members of the Cabinet. Segodnya noted that CHERNOMYRDIN's appointment was "very strange" and showed that the Kremlin had, "a shortage of people" from which it could choose. It seemed that even the Foreign Ministry was surprised by the appointment. CHERNOMYRDIN has stressed that Russia must not isolate itself as a result of the Yugoslav conflict.

CHERNOMYRDIN's appointment offers the US and NATO a solid diplomat with experience and established relations to negotiate peace with Yugoslav President Slobodan MILOSEVIC. YELTSIN pointed out, "CHERNOMYRDIN is a strong and wise man enjoying prestige abroad." He later added, "CHERNOMYRDIN can speak with MILOSEVIC as nobody can. He's known him for a long time." Washington and London are eager to engage Russia in the settlement process. NATO Secretary General Javier SOLANA said that bringing Russia,

Today's News Highlights

Russia

WB Funds Contigent On IMF

Yukos Seeks Foreign Investor

European Republics

Lith-Russia Trade Relations Shift

Kuchma Presents Peace Plan

South Caucasus & Central Asia

TDA Promotes Caspian Region

Turkey-AIOC Sign Protocol

Kyrgyz To Sell Gold Deposits

Tajik To Sell Cotton Plants

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Economy

Ruble = 24.85/$1.00 (NY rate)

Ruble = 24.8/$1.00 (CB rate)

Ruble = 26.77/1 euro (CB rate)

Russian Extends GKO Restructuring Deadline

· Russia's First Deputy Finance Minister Mikhail KASYANOV, in France attending a meeting with the Paris Club, announced that the deadline for submitting applications within the Russian Treasury bills and bonds (GKOs and OFZs) restructuring program will be extended for ten days from the 20th to 30th. He noted that the initial figure of $500 million allowed to be converted was reduced to $200 million. KASYANOV said that the Russian Central Bank will arrange monthly auctions for exchanging ruble-denominated proceeds on GKOs with a limit of $50 million per auction. The number of auctions has also been revised from 11 to four. He said, "Probably there is some misunderstanding here on the part of Western banks. In fact, the auctions will be continued, but their dates still remain to be determined depending on the condition of currency reserves of the Central Bank and the general financial situation." This will also depend on Russia securing a loan from the International Monetary Fund and other international lenders as well as the restructuring of Russia's debt by the Paris Club. He admitted that creditors cannot, "make a decision because of a shortage of information...The list of shares and bonds of Russian issuers that foreigners could buy with rubles they have has not been published." KASYANOV said that, "there also is no list of Russian banks that will be allowed to work with these instruments." Clarification as to procedures for taxation of foreign operators in the security market are also lacking. He said that the government is working to present these necessary statutes during the extension. KASYANOV is traveling to London today for talks with the committee of 19 Western banks and the London Club.

WB Funds Contingent on IMF Negotiations

· Russian officials and the World Bank President James WOLFENSOHN held negotiations on new lending over the next two years. WOLFENSOHN was scheduled to meet with Prime Minister Yevgeny PRIMAKOV, but the Prime Minister was hospitalized for an unplanned medical check-up following a bout of back pains. PRIMAKOV sent First Deputy Prime Minister Yuri MASLYUKOV to replace him at the

meeting. Former prime minister, leader of Our Home Is Russia, and newly appointed presidential envoy for peace in Kosovo Viktor CHERNOMYRDIN also met with the World Bank President. Following the meeting, CHERNOMYRDIN announced at a press conference that the World Bank is ready to lend Russia up to $3 billion over the next two years. This figure includes a World Bank loan for $2.3 billion and the possibility of an arrangement for a Japanese government credit exceeding $1 billion. These funds, if granted, will be used to restructure Russia's industrial sector and finance social reforms. The World Bank earlier this year signed a deal to lend Russia $400 million to build roads in Siberia. In the course of the meeting in Moscow on April 2nd between MASLYUKOV and director of the World Bank's Russian department Michael CARTER, the parties finalized their positions on the volume of finance in real money mass of tax liabilities foremost as regards natural monopolies and on the access to the export pipeline for those oil companies which failed to meet their tax obligations to the federal budget. These issues were also reviewed. Despite his absence, WOLFENSOHN expressed support for the Russian government headed by PRIMAKOV and for taking economic reform measures.

The new loans are contingent the government and the International Monetary Fund (IMF) reaching an agreement. MASLYUKOV said that Russia hopes to finalize loan talks with the World Bank and the IMF before the end of the month. A team of IMF officials is in Moscow today to finalize plans for lending. Russia hopes that the resumption of the IMF loans will help attract money from other lenders and attempt to convince them to write off some old debts.

Business

Yukos Seeks Partner With Deep Pockets

· Russia's second largest oil producer Yukos is seeking a foreign partner and a $1.5 billion loan to help it develop the Siberian oilfield Priobskoye in Khanti-Mansiisk. Yukos President Mikhail KHODORKOVSKY said that company would have to borrow from banks for the funds to develop the field which has 4.5 billion barrels of reserves. He said that the company would like a foreign partner who could secure better borrowing terms than Yukos can. BP Amoco withdrew from the Priobskoye project last month, citing low world oil prices and efforts to trim

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its worldwide capital investments. KHODOR-KOVSKY's bank Menatep lost its license last year after defaulting on its retail deposits and on foreign loans. When Menatep defaulted, Germany's state-owned West Merchant Bank, a division of Westdeutsche Landesbank, ended up with a 15 percent stake in Yukos and Japan's Daiwa Bank took a 14 percent stake. A series of share issues by Yukos subsidiaries in March may result in the stripping of assets from Yukos to offshore companies with not apparent relation to the oil producer, the Dow Jones Newswire reported. This is move of assets is not likely to attract foreign investors.

peacefully. The Ukrainian leader said in an interview with the Pravitelstvenny Kuryer newspaper that the plan envisages three stages for a settlement of the Yugoslavia situation. The first stage provides for simultaneous moves: the Yugoslav authorities stop hostilities in Kosovo, withdraw the army and security forces as well as create conditions for an unhampered return of refugees under international control of peacekeepers. NATO countries meanwhile would discontinue the air raids on Yugoslavia. KUCHMA believes that peacekeepers should be commanded by a politician having a mandate from the UN Security Council. At the second stage, the President suggests that refugees return under control and escort of peacekeepers. Provisions would be made for their accommodation and for a humanitarian mission of the Organization for Security and Cooperation in Europe. Then, KUCHMA notes, it is necessary to call an international peace conference in a neutral country. The President stated that if Belgrade and Brussels give a positive reply, he would try to reach an agreement with Yugoslav President Slobodan MILOSEVIC and NATO Secretary-General Javier SOLANA.

Lazarenko Seek Asylum On Torture Grounds

· Former Ukrainian Prime Minister Pavel LAZAR-ENKO, held in custody in San Francisco, has asked for political asylum. Commenting on his decision to stay in the US, he explained to the immigration court that he was afraid of attempts upon his life if he returned to Ukraine. LAZARENKO had appealed to the court to put off his extradition to Ukraine in compliance with the provisions of an international convention against torture. In a petition LAZARENKO filed with the court, he pointed out that he was still a candidate for presidential nomination from the Gromada party in the coming Ukrainian presidential election. He said that his political opposition to President Leonid KUCHMA could expose him to "intense physical and psychological coercion" if he returns to Ukraine. In Ukraine he has been charged with corruption and money laundering. He says that all the accusations against him have been trumped up by his political opponents

South Caucasus & Central Asia

TDA Promotes Caspian In Three-City Tour

· The US Trade and Development Agency (TDA)

European Republics

Lithuanian-Russia Trade Relations Shift

· According to the Lithuanian Statistic Department, Russia has slipped to fifth place on the list of Lithuania's main export partners, behind Germany, Latvia, Belarus, and Italy. However, Russia is Lithuania's second-most important import partner. In February, Lithuania exports in general were down by 3.8 percent and imports by 12.4 percent compared with the previous month. Exports to Russia fell by 11.6 percent, while imports from that country were down 14 percent. Exports to European Union (EU) countries accounted for 54 percent of the total goods exported, while those to the Commonwealth of Independent States (CIS) dropped to 19.2 percent. Imports from the EU made up 48.9 percent of the total goods imported and from the CIS 22.2 percent.

The co-chairmen of the Lithuanian-Russian inter-governmental commission on economic and humanitarian cooperation, Lithuanian Foreign Minister Algirdas SAUDARGAS and Russian Transport Minister Sergei FRANK met on Wednesday. They focused on issues linked to the upcoming meeting between Prime Ministers Yevgeny PRIMAKOV and Gediminas VAGNORIUS in Moscow. The Prime Minister intend to sign in Moscow a package of important inter-governmental agreements in trade, economy and humanitarian cooperation, as well as a comprehensive agreement on trade and cultural relations between Lithuania and Russia's Kaliningrad region.

Kuchma Offers Peace Plan For Kosovo

· Ukrainian President Leonid KUCHMA on Thursday offered a plan of settling the Kosovo conflict

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announced on Wednesday it will host a three-city US Caspian Ambassadors' tour to brief American businesses about the latest project developments in the Caspian region. The tour will take place between April 30th to May 7th, stopping in New Orleans, New York City, and Washington, DC. At each stop US businesses executives will have the opportunity to meet one-on-one with the Ambassadors to discuss their specific capabilities and investment plans in the region. Participating in the tour will be US Ambassador and special advisor to the President and Secretary of State on Caspian energy issues Richard MORNINGSTAR, Ambassador to Armenian Michael LEMMON, Ambassador to Azerbaijan Stanley ESCUDERO, Ambassador to Georgia Kenneth YALOWITZ, Ambassador to Kazakhstan Richard JONES, Ambassador to Turkey Mark PARRIS, Ambassador to Turkmenistan Steven MANN, and Ambassador to Uzbekistan Joseph PRESEL. TDA Director J. Joseph GRANDMAISON said, "While it is true the pipelines are the driving economic force in the Caspian region, US companies are equally skillful in developing the transportation, water, telecommunications, and various other infrastructure projects need to support the oil and gas industry...By having the Ambassadors here to provide project briefings, this tour is an effort to ensure that where major infrastructure development is taking place, US companies are involved." The tour ending in Washington coincides with the American Turkish Council's annual even taking place from May 6th to 7th. TDA provides American firms with market entry, exposure, and information through the funding of feasibility studies, technical assistance, reverse trade missions, and conferences. These efforts help American businesses establish a position in newly emerging economies.

Turkey-AIOC Sign Baku-Ceyhan Protocol

· The Turkish government and Azerbaijan International Operating Company (AIOC) on Tuesday signed a protocol in Istanbul agreeing on progress for negotiations on the Baku-Ceyhan oil pipeline and pledging to sign key agreements in three months,

after Turkey's elections. The document was initialed by Richard MORNINGSTAR, US Ambassador and special advisor to the President and Secretary of State on Caspian energy issues. The protocol refers to "important progress" in the negotiation on the Intergovernmental Agreement, The Host Country Agreement, The Turnkey [Construction] Agreement, and the Governmental Guarantee Agreement. It also refers to Turkish state pipeline company Botas as the "turnkey sub-contractor" and envisions a 1730 kilometer line from Baku to Ceyhan via Georgia. The pipeline's daily capacity is one million barrels and an annual capacity 50 million barrels. Turkey pledged that the pipeline will cost a maximum $2.4 billion. The US favors a multi-pipeline strategy, which will give more independence to former Soviet nations by opening an "energy export corridor" that bypasses Russia and Iran.

Kyrgyz To Sell Three Gold Deposits

· A senior government official Kadyrbek KAKETAYEV said, "The State Agency for Geology and Natural Resources has announced the tenders with a view to developing Perevalnoye and Terekan deposits and further exploring Savoyardy deposit." The date of the tender has not been set. Perevalnoye and Terekan deposits contain about six tons of gold each. Savoyardy deposits contains between seven and eight tons of gold, over 2,000 tons of antimony and some silver. Kyrgyz gold production rose to 21 tons in 1998 from 17.4 tons in 1997. Gold represents about 40 percent of Kyrgyz exports.

Tajik To Sell Cotton Plants

· The Tajikistan Committee for the Handling of State Property will hold its second open international tender on June 12th for the privatization of 16 cotton-cleaning plants. In the first tender in March, six out of the 22 plants found new owners. That tender brought in more than $15 million to cash-strapped Tajikistan. The starting prices of plants offered at the second tender range from $1.62 million to $3.09 million. Each buyer will be required to pay 5 percent of the starting price. The closing date for offers is June 10th.

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