DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, April 20, 1999

Russian Federation

Politics

Yeltsin Supports Regional Leadership

· Russian President Boris YELTSIN, opening a meeting of 19 regional and territorial leaders today, said he favored greater independence of regions. "We shall give you greater independence than provided for by bilateral treaties we signed." He added, "We shall gradually review these treaties. Present your proposals." YELTSIN emphasized that, "priority should always belong to regions rather than the federal center," and this is also true, according to the President, of foreign policy and foreign economic activities. He called on territorial and regional leaders to establish more active contacts with foreign countries and, "to conclude deals, advantageous for regions," which will be also useful for Russia as a whole. "We shall support such active policy of regions," YELTSIN stressed. The head of state assured territorial and regional leaders that he will render them constant and all-round support and called on them to contact him on pressing issues. Comment: With his health on the rebound, impeachment hearings still looming, temptation of reshuffling the government running high, it appears that YELTSIN is seeking out allies with the representatives of the Federation Council in hopes that his popularity will rise.

Nuclear Theft Prevented

· The Murmansk Federal Security Service (FSB) department arrested a man on Saturday for attempting to steal pieces of the Kola nuclear power plant. The reactor shut down on Friday, when safety devices detected someone tampering with the equipment. The unidentified suspect worked at one of the auxiliary services of the nuclear power station, head of the press service of the Murmansk FSB department Vladimir SOKOLOV said. Investigators have

determined that the thief tried to take apart some oil-pressure sensors on a generator. The suspect said he wanted to sell the equipment. According to preliminary data, it was not the first theft committed by the suspect at the Kola nuclear power station. The arrest of the suspect was delayed because he had been hospitalized as a result of an accident. The suspect faces charged under Article 158 of the Russian Criminal Code—theft, which entails up to ten years imprisonment.

Economy

Ruble = 24.78/$1.00 (NY rate)

Ruble = 24.77/$1.00 (CB rate)

Ruble = 26.41/1 euro (CB rate)

Moscow Positive About EBRD Relations

· Russian Economics Minister Andrei SHAPOVALYANTS and European Bank for Reconstruction and Development (EBRD) president Horst KEHLER met on Monday in London to discuss the development of relations and financial contacts. KEHLER said that the bank fully supports the policy conducted by the government of Prime Minister Yevgeny PRIMAKOV. SHAPOVALYANTS said, "The EBRD confirmed its interest in the development of cooperation in Russia." He added that cooperation will not be limited to investments and, "the bank will also provide technical assistance in strengthening Russia's financial sector." SHA-POVALYANTS said that, "Russia remains a priority of the European Bank both in the

Today's News Highlights

Russia

Metrosvyaz Co. Operational

Berezovsky Returns From Nice

European Republics

Kiev Stops Buying Turkmen Gas

No Confidence In Vagnorius

South Caucasus & Central Asia

Chernomyrdin Seeks Solution

Georgian-Russian Relations

Uzbek To Join GUAM

Kazakh-Czech Transport Ready

Politics-Economics-Business

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structure of portfolio investments and the long-term strategic interests." Russia and the Bank will cooperate in three spheres: the restructuring of the Russian banking system, investments in economics and the prevention of disputes over the non-return of Bank credits. "These three spheres are of the greatest interest and importance. The EBRD reaffirmed support to Russian banks in the governmental efforts to restructure the national banking system, further crediting of small businesses and the adoption of Western management by Russian enterprises." The EBRD leadership and the Russian delegation have managed to find an approach which will help assess positive changes in Russia's economy despite its current difficulties. He said talks on more loans for Russia are impossible without that. Deputy Prime Minister Vladimir BULGAK said after a government session that Moscow hopes to receive a $400 million tranche of a second coal loan from the EBRD before December 1999. KEHLER said, "The volume of new commitments in 1999 will depend on the investment climate determined by our countries of operations." The assistant secretary for international affairs at the US Treasury Edwin TURMAN urged the bank to continue to focus on Russia and other less advanced countries rather than on the more successful economies of central Europe.

EBRD Plans To Shift Investment Focus

· The European Bank for Reconstruction and Development (EBRD) is shifting its focus in Russia from long-term project finance toward providing short-term working capital to Russian exporters. As a result of the Russian crisis the bank lost 261.2 million euros ($278 million). Head of the EBRD's Russian team Reinhard SCHMOELZ at the bank's annual meeting said, "Business is not normal in Russia." Chief economist for the EBRD Nicholas STERN said the bank would continue to invest in Russia, but the volume of its investment would depend on the business client. The EBRD has so far only secured on project against nine projects over the same period in 1998. SCHMOELZ said the EBRD would soon announce its first pre-export finance project, which would provide working capital of $15 million to $20 million, probably for a Russian oil exporter. Co-chief executive for Europe at Salomon Smith Barney and former first vice president of the EBRD Ron FREEMAN said the real challenge was to provide working capital not for exporters of raw

materials, but for Russian companies that could manufacture and export value-added products, such as rocket engines or machine tools. FREEMAN added, "EBRD is being pressured to turn away from Russia. But if you turn away from Russia you may as well close down the EBRD." EBRD President Horst KEHLER warns that the bank has adopted a business strategy, paying close attention to the viability of countries' markets. He noted that the Russian crisis is still affecting countries throughout the region. KEHLER said, "In accordance with our mandate we cannot compromise sound banking principles. That means that we have to be more selective than in the past: quality, as well as volume of projects, is important," the Financial Times reported.

Business

Metrosvyaz Co. Begins Operations

· A new telecommunications network, Metrosvyaz Company, launched its operations in Russia on Monday with a teleconference between St.Petersburg, Moscow, and the US. The subscribers will both see and hear each other. The first call from St.Petersburg was made by Russia's First Deputy Prime Minister Vladimir BULGAK, who is in charge of communications and high technologies. A member of the Metrosvyaz Company management said that the company's telecommunications system, which has been installed in St.Petersburg, is the first and largest one in Russia. The company will invest $50 million in the development of its systems in St.Petersburg and Leningrad Region, with about $10 million already invested in the project this year. Within 1999-2000, Metrosvyaz Company's networks will be developed in 36 regions of Russia.

Berezovsky Returns, But Avoids Investigators

· Russian business tycoon Boris BEREZOVSKY, who is under investigation by the Prosecutor General's office on money laundering charges, returned to Moscow to testify, even after a warrant for his arrest was revoked. Immediately upon his return, BEREZOVSKY checked into Moscow's Central Clinical Hospital complaining of back pain. His lawyer Genri REZNIK said BEREZOVSKY's ailment prevented him from meeting with investigators on Monday. He added that his client may remain in the hospital for up to one week. Investigator Nikolai VOLKOV said he would wait for BEREZOVSKY's condition to improve, noting that questioning might

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take place at the clinic. He issued a veiled threat that an arrest warrant could be issued if the Prosecutor General's office has cause to believe that BEREZOVSKY is feigning illness to avoid interrogation. BEREZOVSKY claims he is innocent. He said, "I have not broken Russian laws." He is accused of using a Swiss company Andava, to illegally transfer $250 million in hard currency earnings from Russia's largest airline, Aeroflot. On April 3rd, BEREZOVSKY was dismissed from his post as CIS executive secretary, stripping him of immunity.

can be handed over to the President. ADAMKUS urged the majority coalition in the parliament—conservatives and Christian Democrats—"should not shirk political responsibility in adopting a decision on a new prime minister and a new government." After a meeting in Warsaw, ADAMKUS and Polish President Alexander KWASNIEWSKY will fly to Washington to attend the NATO jubilee summit. ADAMKUS plans to push Lithuania's membership in the alliance and demonstrate its achievements to meet NATO standards.

South Caucasus & Central Asia

Chernomyrdin Seeks Kosovo Conflict Solution

· Viktor CHERNOMYRDIN, special representative of President Boris YELTSIN for the settlement of the situation around Yugoslavia, has embarked on a Caucasus tour focused on developing ways to settle the Yugoslav conflict. He is accompanied by First Deputy Chief of the External Policy Department of the Presidential Administration Alexei MANZHOSIN and Deputy Foreign Minister Leonid DRACHEVSKY. The envoy is hoping to work out a common stand because the leaders and peoples of the CIS countries are disturbed by the aggravation of the Yugoslav crisis and the brutal NATO air raids on that country. This morning he met with Georgian President Eduard SHEVARDNADZE and State Minister Vazha LORDKIPANIDZE. The sides examined proposals, expressed by the Georgian President on Monday, on a settlement of the Kosovo problem. On Monday, SHEVARDNADZE laid out five principles which will help to settle the Yugoslavia conflict: a ceasefire in Kosovo, a withdrawal of armed forces from Kosovo, deployment of an international peacekeeping force, unconditional return of refugees, an immediate start of talks to determine a political status of Kosovo within the Yugoslav state. Later in the day CHERNOMYRDIN will meet with Azeri President Geidar ALIYEV in Baku and then he will be received by Ukrainian President Leonid KUCHMA in Kiev. On Wednesday, CHERNOMYRDIN will present a report to YELTSIN on the results of his consultations.

Georgia-Russia Work On Bilateral Relations

· Georgian parliament speaker Zurab ZHVANIA on Monday met with Russian State Duma speaker Gennady SELEZNYOV and Foreign Minister Igor IVANOV in Moscow. IVANOV said, "We welcome

European Republics

Ukraine To Suspend Purchase Of Turkmen Gas

· The Ukrainian First Deputy Prime Minister Vladimir KURATCHENKO said the government has decided to suspend the purchase of Turkmen natural gas by the Neftegaz Ukrainy company beginning May 1, 1999. In his words, the Turkmen gas purchase by Ukrainian state organizations has become unprofitable and that right will be passed over to commercial organizations. The country will lack 6 billion to 8 billion cubic meters of gas, and that amount it will not be needed until Fall. The Neftegaz Ukrainy national joint stock company is unable to fully pay for the Turkmen gas, Chairman of the Company Board Igor BAKAI regretfully said. He doubts the economic expediency of the contract and a possibility to make the payment scheme simpler. Thus, Neftegaz Ukrainy refuses from buying the gas and offers the government to discuss the subject with independent gas suppliers. Independent suppliers appointed by the government will bring Turkmen gas to Ukraine in Fall. The current debt for Turkmen gas is about $240 million, BAKAI noted.

No Confidence Expressed For Vagnorius

· Lithuanian President Valdas ADAMKUS on Monday in a speech broadcast simultaneously by all six televisions stations said he has, "no political confidence" in Prime Minister Gediminas VAGNORIUS. VAGNORIUS is one of the leaders of the ruling conservative party. He strongly criticized VAGNORIUS' approach toward government, which he suggested is returning the country to a Soviet-style rule. He noted that VAGNORIUS failed to implement the government programs and accused him of seeking to limit the authority of the head of state. The Cabinet has been reviewing what powers

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such contacts, primarily through our parliaments." The talks are expected to focus on issues of bilateral cooperation. SELEZNYOV said that he regretted that, "part of jams in Russian-Georgian relations lies in the political field, gets dependent on what is happening in the world," hindering the ratification of the Russian-Georgian cooperation treaty. Apart from differences over the issue of Abkhazia, or Georgia's breakaway region, approaches are different to the Yugoslavia crisis, over which, "the Georgian side has taken a pro-NATO position," SELEZNYOV said. ZHVANIA stressed that Georgian condemns the ethnic cleansing in Kosovo. He added that Russia and Georgia should concentrate on what positive there is, which he cited as growing bilateral trade, with about 30 percent of Georgia's exports going to Russia. He cited Russia's increasing investment in Georgia. ZHVANIA will also meet with Federation Council chairman Yegor STROYEV and Defense Minister Igor SERGEYEV.

Uzbekistan To Join GUAM

· Georgian President Eduard SHEVARDNADZE on Monday said that the Presidents of the GUAM states (Georgia, Ukraine, Azerbaijan, Moldova) will formally announce the accession of Uzbekistan to the group when they meet in Washington at the Uzbek embassy. He did not answer the question on whether GUUAM may be turned from a consultative group of countries into an economic or political alliance. However, he noted that the five members have drafted documents redefining the nature and objectives of the organization. "There are no military aspects in the draft document so far." The leaders will be in Washington celebrating the 50th anniversary of the North Atlantic Treaty Organization (NATO). SHEVARDNADZE said. Meanwhile, Georgia, Azerbaijan, Ukraine on Saturday ended a four-day joint military exercise on the Georgian Defence Ministry's training range not far from Tbilisi. The purpose of the exercise was to practice joint efforts to ensure the security of the Baku-Supsa oil pipeline. The exercise was conducted in three stages: imitation of a terrorist act to dynamite the pipeline; destruction of the

terrorist group; and construction of a bypass pipeline to ensure continuous flow of oil. The Georgian Defense Ministry has created the first special unit to guard oil and gas pipelines. The unit is manned with officers and soldiers serving in one of the paratrooper battalions. Troops will be equipped by donations from the Ukrainian Defense Ministry.

Kazakh-Rus-Czech Gas Transport Ready?

· After meeting in Moscow with Russian Prime Minister Yevgeny PRIMAKOV, Czech Prime Minister Milos ZEMAN told his Kazakh counterpart Nurlan BALGIMBAYEV that Russia is ready to remove barriers for Kazakh gas intended for the Czech Republic. ZEMAN said, "I can publicly state that Yevgeny PRIMAKOV has agreed with our government's offers on the removal of barriers for the transportation of Kazakh gas to the Czech Republic via Russia." He noted that this will help Kazakhstan settle its debts to the Czech Republic. In mid-1980s, Czech contractors built some objects in Kazakhstan, but were not paid for then. Following the collapse of the Soviet Union, that debt to the Czech republic was inherited by Kazakhstan. Kazakhstan was ready to pay off its debt in natural gas deliveries. However, it could not do that because of certain difficulties with its transportation via Russia.

Kazakh, Rus, Ukraine To Sign Space Agreement

· Kazakh President Nursultan NAZARBAYEV said his country, Russia and Ukraine plan to sign an agreement on joint launches of the Energiya booster rocket. During his visit to Moscow, NAZARBAYEV talked with the leaders of the Russian Space Agency. The project will need about $100 million and the participation of Ukraine which makes some rocket parts. "By investing $100 million, Russia, Ukraine and Kazakhstan will become shareholders in one of the largest space programs which will break even in 1.5 to 2 years and after that will start bringing dividends," he said. "We are interested in using the unique Baikonur center for the benefit of Kazakhstan. This is why we are planning to take the most active part in launches from the cosmodrome."

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