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

Thursday, April 29, 1999

tion or because it failed to meet key elements of an IMF reform plan. Once approved by the Fund's executive board, the IMF loans will essentially allow Russia to meet debt obligations to the Fund due later this year. The IMF loans and other funds to be released contingent on this agreement are seen as a key element in keeping Russia financially afloat through the December parliamentary election and presidential elections scheduled for June 2000. Finance Minister Mikhail ZADORNOV pointed out that the accord with the IMF, "opens up an opportunity for us to work with the Paris and London Clubs to reschedule debt repayments."

On the same day, the World Bank said that it had completed negotiations with the Russian government for the revision of the third Structural Adjustment Loan. The bank said that disbursements from the revised loan could begin in the summer, following implementation of agreed prior actions and approval by the IMF's board of the new economic program for Russia. The third Structural Adjustment Loan of $1.5 billion was originally approved by the World Bank's executive board in August 1998, and its first installment, for $300 million, disbursed at that time. The loan is aimed to support reforms to the economic environment for the development of productive enterprises in Russia, including the reform of infrastructure monopolies, private sector development, fiscal management, and financial sector reform. World Bank President James WOL-FENSOHN said, "We look forward to implementing this program for the benefit of the

Russian Federation

Politics

Russia-IMF, WB Reach Loan Agreements

· Russia and the International Monetary Fund (IMF) late Wednesday reached an agreement in principle on a loan worth $4.5 billion over an 18 month period. Technical details must be worked out and Russia must approve new laws which will meet IMF requirements. The Russian delegation led by First Deputy Prime Minister Yuri MASLYUKOV held high level negotiations with the IMF and finance ministers of the world's seven largest industrialized countries, who were in Washington attending the Spring joint session of the IMF and World Bank. IMF Managing Director Michel CAMDESSUS said that the Russian government has promised to implement, "many measures in the fiscal banking and structural areas," and to explain what happened to previous IMF credits. The IMF is worried that previous loans were routed to an offshore company Fimaco. The Russian government is preparing legislation to meet the IMF demands. Head of the Russian State Duma committee for budget and finance Alexander ZHUKOV said the committee is ready to consider the bills, promoted by the International Monetary Fund (IMF) within the shortest possible time. IMF requirements needing legislation on new economic policies, including banking restructuring and tax law enforcement. The IMF received assurances from the Russian government that President Boris YELTSIN will reduce the budget deficit. CAMDESSUS said, "As soon as the measures have been implemented and I have received the necessary assurances, I shall ask the executive board to consider Russia's request for a standby arrangement of [$4.5 billion] over 8 months, of which [$3.1 billion] would be in the first 12 months." Russia is the IMF's biggest borrower but also one of its least reliable ones. Loans have been halted several times because of Russia's poor performance on tax collec

Today's News Highlights

Russia

Auditor Check Use of IMF Funds

Rus-China Discuss Electricity

European Republics

Carlsberg Buys Lith. Brewery

Rus-Belarus Sign 11 Documents

South Caucasus & Central Asia

Shevardnadze On NATO

Azeri Signs Three Oil Deals

Azeri-Armenia On N-K Conflict

Rus-Tajik Joint Exercises

Politics-Economics-Business

Page

Thursday

April 29, 1999

Intercon's Daily

Russian people." The Russian economy has been in a severe recession since last year's default on foreign debt and a botched devaluation of the Russian ruble. It suffered a 4.8 percent contraction in 1998, and the IMF is predicting an even steeper decline of 7 percent in output this year.

Ammunition Depot Discovered In Severodvinsk

· Russian police have discovered an arsenal of arms and explosive devices in a private garage in the north Russian city of Severodvinsk. Three people having connection to the depot have been arrested. The criminal group was disclosed as a result of investigation and search work of the regional department for combating organized crime. One of the criminals is a fortification engineer of a military unit deployed in the region. After a thorough search of the garage, police seized 18 standard mine explosive devices, including trap mines, live ammunition, a gas pistol, a hunting gun and two military radio stations. An investigation is to establish for what purpose the arsenal was formed.

Economy

Ruble = 24.31/$1.00 (NY rate)

Ruble = 24.23/$1.00 (CB rate)

Ruble = 25.73/1 euro (CB rate)

Auditors Check Use of IMF Funds

· At the request of the Russian Procurator General Office, the Court of Auditors is going to make a more detailed check into the use of International Monetary Fund (IMF) moneys from the first installment of the $4.8 billion loan. Auditor Eleonora MITROFANOVA said her office has already verified the use of the credit. Part of this sum, $1 billion, was transferred to the Finance Ministry to be used for state needs with the IMF permission. The Central Bank used about $2 billion to shore up the ruble in the domestic currency market. The remaining funds, around $1.5 billion, were placed on deposits in US banks as foreign currency reserves of the Central Bank and invested in securities in the US. MITROFANOVA said that auditors are now investigating whether these funds have been included in the foreign currency reserves of the Central Bank. She said the information circulated by Duma deputy Viktor ILYUKHIN on the possibility of misusing the credit is, "too exaggerated and has nothing to do will reality." Chairman of the Russian Court of Auditors Khachim KARMOKOV

said that the auditors are working to conclude checks into Fimaco. A comprehensive check into the Central Bank's activity, including checks regarding operations in the treasury bill market, the activity of banks abroad, expenditures on construction and others, during which the auditors are to establish the amounts of incomes and justification of the Central Bank expenditures, will be completed no sooner than the third quarter of this year, KARMOKOV said.

Retail Trade Turnover Drops

· Russia's retail trade turnover in the first quarter of 1999 totaled 352.8 billion rubles, a drop of 15.8 percent in the goods as compared with the first quarter of 1998. Retail trade turnover in March amounted to 125 billion rubles, a decrease of 12.7 percent on the index for March 1998. Nonfood products reached 51.1 percent and food products 49.9 percent in the macrostructure of retail trade in March. The share of trade organizations in the total volume of retail trade turnover in March 1999 fell to 68.4 percent as against 69 percent in March 1998, while the share of markets, accordingly, rose from 31 percent to 31.6 percent.

Russia Raises Export Duties On Scrap Metals

· The Russian Cabinet has set the rate for customs dues on ferrous metal waste, scrap and melting stock exported from Russia outside member-countries of the Commonwealth of Independent State (CIS) Customs Union at 15 percent of their customs cost, but no less than 15 euro per 1,000 kilograms. The Governmental Information Department stated that the rate is fixed for a period of six months. Effective May 1st, Russia will increase export duty for scrap nickel, copper, and aluminum by 20 percent. The resolution aims to ensure the load of Russian metallurgical enterprises using ferrous metal waste and scrap. The Trade Ministry, the Foreign Ministry, and the Ministry of Economics are instructed to hold immediate consultations with the European Union Commission on the new export due and the Ministry for CIS Affairs and the Ministry of Trade are instructed to hold related negotiations with member-countries of the Customs Union.

Business

Rus-Sino Electricity Export Talks Open

· Russian-Sino talks opened in Beijing Monday on electricity deliveries from Russia's Irkutsk region to

When you need to know it as it happens

Politics-Economics-Business

Page

Thursday

April 29, 1999

Intercon's Daily

China. The Russian delegation is led by Anatoly CHUBAIS, chairman of the board of governors of United Energy Systems of Russia (UES), while the Chinese delegation is represented by the State Energy Corporation. The Russian delegation also includes officials of the Fuel and Energy Ministry and energy company Irkutskenergo. CHUBAIS said Russia is prepared to discuss a "unique-scale" draft project of Russia's electricity exports to China over 25 years through a future 1,800 kilometer power line running from the Irkutsk region. He said this is a, "gigantic project whose implementation will take billions of dollars," with export revenues estimated at an annual "hundreds of millions of dollars." Russia is considering the idea of an international investment consortium, with 30 percent stakes for Russia and China. CHUBAIS believes a short term agreement can be reached which would require only short power lines to be erected. China shows interest in UES is growing as it plans to launch its giant Xiangsu electric station on the Yangtze river in 2010. CHUBAIS was received by Chinese Prime Minister ZHU Rongji on Wednesday.

Latvia is seeking European Union (EU) membership and hopes to issue its bond to establish a benchmark ahead of the EU summit in September. Latvian Finance Minister Ivars GODMANIS said, "We want to know how we are being evaluated [by the markets]." Moody's Investor Service rated Latvia at the Baa2 level, while Standards & Poor's rated it BBB.

Rus-Belarus Sign 11 Union Documents

· Russian President Boris YELTSIN and Belarus President Alexander LUKASHENKO signed 11 documents in Moscow to step up efforts to form the Rus-Belarus Union. The agreements signed include documents concerning the formation of a single customs space, the border policy, the security concept, and defense cooperation, and in the sphere of arms manufacturing. The Union would have one President and one budget. The two Presidents decided to appoint director of the Russian Border Service Konstantin TOTSKY Chairman of the Border Committee of the Union of Belarus and Russia and Russian Customs Chief Nikolai BORDYUZHA Chairman of the Customs Committee of the Union. YELTSIN said talks with LUKASHENKO had passed, "very well, with great mutual attention, respect for each other's positions. We had practically no differences." Both leaders discussed their stance on the conflict in Yugoslavia. LUKASHENKO, when leaving, said that, "Belarus has proposed a radical draft of an agreement that indeed speaks of a single union state. We are supporters of a definite and rigid authority in this state." He noted that Russia "is not ready" for a close union between the two countries. He said, "Everybody in Russia keeps saying, `we are prepared for the unification.' but they haven't dared to act." LUKASHENKO accused the Kremlin of dragging its feet on the proposed merger.

South Caucasus & Central Asia

Georgian Pres. On NATO

· Georgian President Eduard SHEVARDNADZE supports NATO, but raises concerns over on NATO's military tactics. His first position is to seek the immediate withdrawal of forces, repatriation of the region, and an end to hostilities. In a speech at the Nixon Center in Washington he said that if the Alliance had not struck Yugoslavia, "we would have faced a catastrophe with ten times more victims than now." He stressed that, "There is no other way than

European Republics

Carlsberg Buys Controlling Stake In Svyturys

· The Danish brewer Carlsberg on Wednesday acquired a 95 percent controlling stake in Leading Lithuanian brewer Svyturys for $45 million. Svyturys has annual sales in Lithuania of 350,000 hectoliters and a market share of 26 percent, according to the Financial Times. Svyturys is listed on the Vilnius stock exchange. Carlsberg purchased shares mostly from employees who received ownership of the brewery when it was privatized in 1993. The Danish brewer must now offer to purchase the outstanding Svyturys shares. Carlsberg vice president Lars FELLMAN said, "Carlsberg sees the Svyturys investment as an entry into the Baltic beer market, which has a size of 3 million hectoliters a year for Estonia, Latvia, and Lithuania."

Latvia To Issue Euro Bonds

· Latvia plans to issue its first euro-denominated bonds soon. The Latvian bond issue is expected to be 150 million to 200 million, with the maturity of five years. The Financial Times reported that the bond will be priced to yield a spread in the low to middle 300 basis point range over five-year German bunds.

When you need to know it as it happens

Politics-Economics-Business

Page

Thursday

April 29, 1999

Intercon's Daily

the use of force. This is the only way to stop ethnic cleansing and extreme separatism."

SHEVARDNADZE said NATO is not an aggressive organization but a real force capable of maintaining global peace and restoring peace where necessary. "This is an absolutely new mission of NATO," the Georgian President said returning from the Washington NATO summit. He stressed that the union of peoples and countries participating in NATO, "does not contradict the interests of Russia. All countries, including Georgia, Ukraine, Russia, Azerbaijan, Armenia, Uzbekistan and other states should take their place in the world, given to them by history."

Azerbaijan Signs Three Oil Agreements

·On the heals of events marking NATO's 50th anniversary, Azeri President Geidar ALIYEV on Tuesday signed three oil production sharing agreements (PSA) with US oil companies that could be worth as much as $10 billion. Exxon and Mobil committed themselves separately to develop offshore production projects. Exxon will work in the Zafar and Mashal offshore fields, while Mobil acquired the rights to the Savalan, Dalga, Lerik-Deniz, and Janub offshore deposits. Each company will own 30 percent of its project, with Azerbaijan state oil company Socar owning 50 percent. The remaining stakes will be open to bidders, but are expected to go to French oil giant Total. Moncrief Oil International will work with Socar to develop an on-shore oilfield. Moncrief will have a 64 percent stake in the project below the Kura River, with Socar holding 20 percent and ISR taking the remaining 16 percent. The PSAs guarantee the foreign companies secure and favorable investment terms. Azerbaijan hopes these deals will fill the void after three consortiums pulled out of Baku due to hitting dry holes. The LUKoil and Atlantic Richfield Corp., the Caspian International Petroleum Co. consortium, and the BP Amoco led North Absheron Operating Co. all departed within the last few months. Richard MONCRIEF chairman of Moncrief Oil International said,, "Azerbaijan is the center of activity that will shape the region in the new century. The

richness of its oil resources and progressive attitude of Socar, make a production sharing agreement in Azerbaijan a plum for any company."

Azeri-Armenian Presidents Meet Over NK

· Azeri President Geidar ALIYEV and Armenian President Robert KOCHARYAN, after celebrating 50 years of NATO, held consultations on the settlement of Nagorno-Karabakh in the US State Department, which was attended by Secretary of State Madeleine ALBRIGHT. KOCHARYAN said that it could be ranked "among the most useful ones in the recent period" and that it helped both sides to better understand each other's motives. But, the Armenian President ruled out any further concessions by Armenia. He denied that his country is trying to delay a solution to the conflict. The Armenian President reaffirmed that he still regarded the latest proposals of the co-chairmen of the OSCE Minsk Group, stipulating that the Nagorno Karabakh problem should be settled on the principles of a "common state," as the basis for negotiations. ALIYEV reiterated that Azerbaijan rejects the latest peace proposal drafted by the Minsk Group. The Azeri President said he intended to strive for the settlement of the conflict on the principles that were put forward during the 1996 Lisbon summit of the OSCE and which envisage a heightened status of self-government for Nagorno Karabakh within the boundaries of Azerbaijan. Both sides agreed to hold the second meeting of the Defense Ministers of Azerbaijan, Armenia, and Georgia on trust-building measures in the region in May. KOCHARYAN said that, "taking part in it for the first time will be the Defense Minister of Nagorno Karabakh."

Joint Russian-Tajikistan Military Maneuvers

· A joint tactical exercise of Tajik and Russian troops began today at one of the proving grounds Tajikistan. Taking part in the exercise will be units of the Russian 201st motorized infantry division, which is deployed in Tajikistan, and training companies of the Tajik Defense Ministry and cadets of the Higher Military College of the republic.

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

available for non-profit institutions.

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

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1999, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page