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 27, 1999

Russian Federation

Politics

More Details On Intourist Hotel Blast

· Russian Federal Security Service (FSB) officers have determined that the explosive device placed in an elevator which caused a blast at the Intourist Hotel in Moscow had an impact of two kilograms. No one has claimed responsibility for the explosion that injured up to 11 people, including a Spanish citizen. Windows, doors and a winter garden glass partitions, doors of hotel rooms and elevator wells have been damaged by the blast, not only on the 20th floor, but also outside the hotel. The 20th floor, where offices of various companies are situated, was mostly damaged. The office of popular singer and State Duma member Iosif KOBZON is situated on the floor. However, KOBZON, said his office was not damaged. He called the act, "just an ordinary terrorist act, a terrorist act in the center of Moscow." Interior Minister Sergei STEPASHIN said, "The situation around the Intourist is very complicated," because of changing property ownership. "But I don't call it an act of terror because nobody was killed." One officer said, "A mechanism of setting the explosive device in motion and means of activating the charge, the type of the explosive can be established only after experiments conducted under special conditions." An investigation at the site of the blast is ongoing. The FSB has also indicated similarities between the blast was staged near the FSB office for visitors on April 4th and the blast at the Intourist Hotel.

Russia-Iraq Discuss Lifting UN Sanctions

· Iraq's Oil Minister Amer Mohammed RASHID held talks on Monday with Russia's Foreign Minister Igor IVANOV, Fuel and Energy Ministry officials, as well as representatives of large Russian oil companies, including LUKoil. RASHID and IVANOV focused on the situation around Iraq and problems of bilateral

cooperation. IVANOV described the Kremlin's proposals to the UN Security Council which would provide for a new system of international monitoring in Iraq and simultaneous cancellation of economic sanctions. RASHID stressed that Russia plays a crucial role in the settlement and normalization of the situation around Iraq. The sides expressed, "a firm intention to further mutually beneficial cooperation between Russia and Iraq both within the frame of the UN humanitarian program and preparations for a post-sanction period, according to a joint statement. Iraq and LUKoil, Zarubezhneft and Mashinoimport negotiated terms of a multibillion dollar deal reached in 1997 on joint Russian-Iraqi exploration of Iraq's West Qurna oilfield in preparation for an eventual lifting of sanctions imposed by the UN. Russia, which is owed $8 billion by Iraq for past weapons purchases and is in desperate need of payment, has already agreed to invest in exploration and upgrading of the Iraqi oil project in order to improve Baghdad's chances of repaying the debt to cash-strapped Moscow. Russian companies hope to be at the head of the line once sanctions are lifted and Iraq begins seeking outside help to develop its oilfields.

ASEAN, EU Meets In Vladivostok

· Security and cooperation in the Asia-Pacific Region will be discussed at an international conference of the Association of South-East Asian Nations (ASEAN) and a number of European Union (EU) countries in Vladivostok closing today. An official of the admin

Today's News Highlights

Russia

EBRD Criticizes Bankruptcy

Berezovsky Formally Charged

European Republics

Baltic State Aim For NATO

Hansapank Recovers

South Caucasus & Central Asia

Georgia Joins Council of Europe

Baku-Novorossiisk Sutdown

Kazakh Gas Row Unresolved

Uzbek Economic Slow Down?

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Tuesday

April 27, 1999

Intercon's Daily

istration of Russia's Maritime Territory on Friday said it is the first time that ASEAN held its conference in Russia. It was Maritime Territory Governor Vitaly NAZDRATENKO who suggested inviting ASEAN to Vladivostok. The conference drew representatives of the Foreign ministries of Japan, China, the Republic of Korea, and other ASEAN member-countries. The Moscow State Institute for International Relations and Far East State University are the co-organizers of the forum. Delegates to the Vladivostok meeting of ASEAN countries discussed a Pacific Accord declaration, worked out in 1995. The document is a kind of Code of Conduct of the signatory states and determines a strategy for joint activities.

Economy

Ruble = 24.53/$1.00 (NY rate)

Ruble = 24.4/$1.00 (CB rate)

Ruble = 25.91/1 euro (CB rate)

EBRD Criticizes Bankruptcy Proceedings

· The European Bank for Reconstruction and Development (EBRD) has sharply criticized the Russian government for its failure to restructure what is left of the nation's banking sector. The EBRD, the biggest foreign investor in Russia, also attacked the process in which Tokobank, one of Russia's largest commercial banks, was being liquidated. The Financial Times quoted EBRD director David HEXTER as saying, "We are deeply distressed by the way the liquidation of Tokobank is taking place. It does not respect creditor rights. It does not respect shareholders rights. It is a model of how not to conduct a liquidation." He notes that EBRD's efforts to defend their shareholder rights have been frustrating. "It is not a question of law. It is a question of the application of the law." He added that the government's actions are damaging what little confidence exists in the banking sector. In 1994, the EBRD bought a $35 million equity stake. HEXTER believes that a predator bank has striped assets out of Tokobank, while it was begin run by a temporary administrator. Delays in implementing a comprehensive restructuring plans have enabled some of Russia's 1,500 banks to transfer their remaining assets to other financial structures while leaving their liabilities to their creditors. Russian bankers claim it is essential to transfer assets and accounts to parallel institutions to ensure continuity of services for their clients.

Meanwhile, Russian Prime Minister Yevgeny PRIMAKOV has signed instructions to nominate Sergei OVSEICHIK as a candidate to the post of Director at the Board of Directors of the European Bank for Reconstruction and Development (EBRD) to represent Russia. The instruction stipulates that a proposal has been accepted by manager Anatoly SHAPOVALYANTS, who represents Russia at the EBRD, to nominate OVSEICHIK. The proposal was submitted to the Russian government because ZHERNOV's term in office as Director representing Russia at the EBRD Board has expired.

Gerashchenko On Banks And US Dollars

· Speaking about the restructuring of the Russian banking sector, Central Bank Chairman Viktor GERASHCHENKO in Washington said that out of 1,473 Russian commercial banks, about 1,000 can exist without any assistance. He said that in the last seven to eight months the Central Bank has reviewed the financial performance and viability of all banks. He said that, "The problem is that all these banks are small ones. Their authorized capital is small, and under present-day regulations, they are not allowed to grant credits for more than 400,000 rubles. This means that these banks can only operate with small businesses. Big business is, to say, too tough for them." According to GERASHCHENKO, 44 banks account for about 50 percent of the Russian banking system's assets and 46 percent of personal deposits. He pointed out to International Monetary Fund (IMF) and World Bank senior officials that Russian banks owe about $2 billion to foreign banks. He also told them that the US dollar will remain in circulation in Russia. According to GERASHCHENKO, "all those inventions about a possible introduction of artificially fixed exchange rate, or about buying dollars from the population and banning their sale to private individuals, are the result of a provocative way of thinking of some of our economists, our present or future colleagues." He said that, "it would be just silly to impose restrictions," on the US dollar, which the country is trying to attract back into the Russian economy.

Business

Berezovsky Formally Charged

· Russian billionaire tycoon Boris BEREZOVSKY, after several grueling hours of questioning at the Russian Prosecutor General's Office, has been

When you need to know it as it happens

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charged with money laundering, unlawful entrepreneurship, and engagement in business activities while in the service of the government. He has been ordered to remain in Moscow until the investigation is completed. His defense lawyer Genri REZNIK said he was going to protest against the charges which were "unconcrete and unfounded." He called the accusations vague and urged the prosecutors to spell them out. "They can't make accusations more specific because there are no specifics." BEREZOVSKY has been accused of siphoning off as much as $250 million in profits earned abroad by the state airline Aeroflot, transferring the money to a Swiss firm, Andava, controlled by BEREZOVSKY and allegedly created for the purpose of laundering Aeroflot's cash. BEREZOVSKY has a large minority stake in the airline and until recently the key commercial and management positions were occupied by men allied with BEREZOVSKY. The tycoon, who also controls an oil company, a bank, two television networks and other holdings, returned to Moscow from France just over a week ago to face questioning, but claimed he had a bad back and needed medical attention. He spent five days in the hospital while investigators waited. Earlier this month, the Prosecutor General's Office issued an international arrest warrant for BEREZOVSKY, but agreed to withdraw it if the mogul came back voluntarily to answer questions. BEREZOVSKY, who has clashed with Prime Minister Yevgeny PRIMAKOV, claims political intrigue is behind the charges, and has vowed to prove that PRIMAKOV is backing his persecution. The Prime Minister earlier this year launched an anti-corruption campaign aimed at diminishing the political influence of businessmen.

Motom-bank Officials Arrested

· Police in Russia's southern Siberia have arrested the chairwoman of the bankrupt Motom-bank and her deputy. They are suspected of power abuse, according to regional police. The suspects were identified by Itar-Tass as Ludmila YAKIMOVA and Vladimir TROFIMOV. Their arrest was part of an operation conducted jointly with a department for combating organized crime. On Monday, police confiscated bank documents during search at the bank office. A criminal investigation has been launched. The Motom-bank ceased to pay its depositors two years ago. It underwent insolvency procedure and was declared bankrupt in March, 1999.

European Republics

Baltic States Eager To Join NATO

· The Presidents of Estonia, Latvia, Lithuania reiterated the aim of their nations to join NATO during the 50th anniversary of the Alliance in Washington. Russian Defense Minister Igor SERGEYEV said that Russian can never allow the Baltic States to join NATO, because it would seriously threaten Russian security. He said that Russia will make corrections to its military doctrine taking into account NATO's newly adopted strategic concept. SERGEYEV said, "We will most certainly take appropriate measures to reduce to a minimum the military threat we predict will arise from such a course of developments." Since the Soviet Union's collapse, the Baltic States have been eager to distance themselves from Russia.

Hansapank Shows Signs Of Recovery

· Estonia's Hansapank has posted higher first quarter profits, shrugging off the ill effects of the Russian financial crisis. Hansapank, 49.98 percent owned by Swedish Swedbank, today announced a consolidated net profit for the first three months of 191.1 million kroons ($13 million) against 83 million kroons for the same period in 1998. Bank figures showed a jump in first quarter net interest income, which rose to 247.2 million kroons compared to 147.5 million kroons, while operating profit nearly doubled year-on-year, at 264.1 million kroons for the quarter. Tallinvest Suprema Analyst Veikko MARIPUU said, "Definitely this is better than we expected. Even our estimate of 150 million kroons profit was considered optimistic." The Estonian economy slowed to 0.2 percent gross domestic profit growth in the fourth quarter, but is seen rebounding slightly by the summer as the effects of the Russian crisis eases with exporters finding new markets, Reuters reported.

South Caucasus & Central Asia

Georgia Officially Joins Council Of Europe

· Georgian President Eduard SHEVARDNADZE addressed today's session of the Parliamentary Assembly of the Council of Europe (PACE). He attended the ceremony in Strasbourg in which Georgia will officially join the Council of Europe as its 41st member. The Georgian President ratified the organization's statute and signed the European

When you need to know it as it happens

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Intercon's Daily

Human Rights Convention and an agreement on mutual assistance in criminal matters. The Council's Secretary General Daniel TARSCHYS said Georgia's accession, "brings us one step closer to realizing the original vision of our founding fathers—uniting the whole of Europe into one family of democratic nations." Georgian State Minister Vazha LORDKIPANIDZE will address the Georgian parliament and raise the flag of the Council of Europe outside the Georgian parliament building. Two special huge TV monitors have been set up in the building for the deputies to be able to watch the Strasbourg ceremony live. The Assembly, which handles political, legal and humanitarian issues of its member-states, will discuss the situation in Bosnia and Herzegovina, including the plight of refugees and resettlers in that country.

Azeri-Russian Pipeline Shut Down Again

· The main oil pipeline connecting Azerbaijan's Baku and Russia's Novorossiisk stopped pumping oil on Monday for the third time in April, supposedly because of a break of its line in Chechnya. Spokeswoman for the BP Amoco led Azerbaijan International Operating Company (AIOC) confirmed today that the oil pipeline was broken. She added, "It would be much better if the line worked more effectively, but at the moment it's not affecting production." AIOC is the oil producer at the Azeri-Chirag-Gyuneshli site of the Caspian shelf and the operator of a part of the Baku-Grozny-Tikhoretsk-Novorossiisk oil pipeline from Baku suburb Sanchagaly to the Russian border. AIOC produced slightly over 110,000 barrels, or about 15,000 tons of oil, over the past 24 hours and can keep it in reserve storage facilities and terminals in Sanchagaly, with the capacity of 120,000 tons, until the pipeline is repaired. AIOC in which BP Amoco has a 34 percent stake, is pumping 65,000 barrels per day of its current production into an alternative line running from Baku to Supsa. Neither the Russian oil pipeline amalgamation, nor the Azeri oil producer have said that the breakage was repaired. Azerbaijan had planned to deliver 300,000 tons of oil to Novorossiisk over the month of April.

British Gas, Agip Fail To Solve Kazakh Dispute

· British Gas and Italy's Agip have failed to solve a five-month old dispute with the Kazakh government over alleged tax arrears, after a meeting last week, Reuters reported. A spokesman for the Revenues Ministry said, "Representatives from the companies came here [Astana] and met with ministry officials." He did not provide details. The sides failed to agree on various points, including how much was owed. Russia's Interfax agency quoted Kabibulla DZHAKUPOV, governor of the Western Kazakhstan region where the giant gas field is located, saying that the firms owed the state budget some five billion tenge in arrears dating from 1995 to 1997. The sum is equivalent to $66 million at the end of 1997 exchange rate and $43 million at today's rate. British Gas has denied the allegations which center on tax treatment of expenses and allowances in agreements signed with the Kazakh government to develop the Karachaganak field. The project involved British Gas and Agip with 32.5 percent each, Texaco with 20 percent and Russia's LUKoil with 15 percent.

Uzbek Economy Slows Down?

· The head of the Asian Development Bank's (ADB) Tashkent office, Nagaradja GNANATHURAI predicts that Uzbekistan's industrial output will decline in 1999. He noted that while the impact on Uzbekistan of the Russian economic crisis was less severe than on other countries, gross domestic product (GDP) grew by only 2.8 percent in 1998, compared with 5.7 percent in 1997, RFE\RL Newsline reported. In addition, the Uzbek som lost value, while the country's foreign debt rose to $2.8 billion. Uzbekistan's GDP increased by 2.9 percent during the first quarter of 1999. The budget deficit was on target at 1.1 percent. Meanwhile, Uzbekistan and Thailand in Bangkok on Friday signed an agreement on the exemption of double taxation to promote more cooperation in trade and investment. Their trade volume in 1997 was 687.2 million baht ($18.5 million). However, bilateral trade volume last year fell to 327.1 million baht ($8.8 million) because of the economic downturn in Thailand.

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Jennifer M. Rhodes, Principal Editor

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