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 7, 1999

Investigation Committee in view of the fact that he began to put pressure on the investigation." The probe into the case concerning SMOLENSKY, who is now Chairman of the Board of Directors of the Soyuz Group management company, has been ongoing for at least seven years. Russia's former deputy prime minister Boris NEMTSOV said that the warrants for BEREZOVSKY, SMOLENSKY, and GLUSHKOV at the same time of SKURATOV's resignation indicates that, "the prosecutor's office is under a powerful pressure of the Communist Party and acts at its bidding." He said, "there will be no order in the country as long as the prosecutor's office fills politically-motivated orders." Krasnoyarsk governor Alexander LEBED said that top power officials have, "become tangled up and the are beginning to drown each other." The Wall Street Journal points out that it is unclear whether the arrests will go ahead, if President Boris YELTSIN succeeds in ousting SKURATOV. Nonetheless it is evident that the power of the oligarchs and their influence in the Kremlin has fallen to a new low level.

Criminal Proceedings Against Skuratov Illegal?

· Russian Prosecutor General Yuri SKURATOV, who submitted his resignation for the second time on Tuesday, said that the criminal proceedings instituted against him based on the scandalous videotape are, "an open and insolent challenge of the corrupted circles to the judicial bodies." SKURATOV has been investigation corruption of Kremlin officials. In an address to the Russian State Duma, he said that, "In

Russian Federation

Politics

Oligarchs Are Now Wanted Men

· The Russian Prosecutor General's office Tuesday issued arrest warrants for oil-to-media tycoon and former secretary of the Commonwealth of Independent States Boris BEREZOVSKY, former commercial director of Aeroflot Airline Nikolai GLUSHKOV, and founder of Agro Bank Alexander SMOLENSKY. BEREZOVSKY and SMOLENSKY have been placed on the most wanted list, and television reports say Interpol may become involved, as BEREZOVSKY and SMOLENSKY are said to be abroad. BEREZOVSKY and GLUSHKOV were charged under article 171, part 2B and article 174, part 3 of the Russian Criminal Code for alleged money laundering and illegal business activities. Prosecutors speculate that BEREZOVSKY stashed hard currency earnings of Aeroflot Airlines in Swiss bank accounts, which he supposedly controls. BEREZOVSKY vehemently denied the charges. Because he was removed from his post of executive secretary of the Commonwealth of Independent States, BEREZOVSKY's immunity and diplomatic status have been stripped. This means that if found guilty, he could face fines and imprisonment. Charges of illegal business practices have a punishment of fines and a prison term of up to five years. Money laundering has a prison term of 7 to 10 years with or without the confiscation of property. The Prosecutor General's Office has subpoenaed BEREZOVSKY for an interrogation dozens of times since March 22nd, but he ignored the order to testify.

SMOLENSKY was charged with theft of state funds and bank fraud. Yuri SKURATOV, said that the decision to put prominent businessmen Alexander SMOLENSKY on the wanted list, "was made on a suggestion from the personnel of the Interior Ministry's

Today's News Highlights

Russia

Yeltsin Appoints Financial Reps.

Modernizing Air Industry

European Republics

Riga Opens Power Conference

Primakov Postpones Kiev Trip

South Caucasus & Central Asia

Russia To Hand Over Territory

AIOC Halves Oil Output

Kyrgyz Prime Minister Dies

Politics-Economics-Business

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April 7, 1999

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stitution of criminal proceedings and removal from the office add to the pressure aiming to hamper the progress in investigation into a number of criminal cases." He added, "Never before have the corrupted officials thrown down such an impudent and open challenge to the judicial bodies." However, he neither specified the criminal cases nor cited any names. SKURATOV pointed out that Deputy Moscow Prosecutor had no legal right to institute criminal proceeding against him. He further said that the only man who could have had the authority was the Acting Prosecutor General after the removal of Prosecutor General from his office. "In my case, all the legal norms have been trampled," SKURATOV stated. SKURATOV has said that the videotape was a concoction trumped up by his enemies. Consequently, Top Secret magazine's supplement Versions reported that a videotape exists which shows Federal Security Service director and Chairman of the Security Council Vladimir PUTIN in the same place and positions with two prostitutes as the SKURATOV video. The magazine said it may be released soon. This may serve as a warning to PUTIN. The Federation Council will hold an extraordinary meeting on April 21st to consider SKURATOV's resignation from the office of Russian Prosecutor-General. The meeting originally was for April 27th.

Economy

Ruble = 25.1/$1.00 (NY rate)

Ruble = 25.12/$1.00 (CB rate)

Ruble = 27.15/1 euro (CB rate)

Center To Combat Money Laundering Formed

· Interior Minister Sergei STEPASHIN on Tuesday announced plans for the creation within the next ten days of a inter-departmental center to combat money laundering. The center will coordinate its work with representatives of all law-enforcement bodies, including auditors from the Finance Ministry and the Central Bank. STEPASHIN said that the center will have three main objectives: to collect information in Russia and abroad on money laundering, law-making and search. This work is to be done by experts assigned to work for the center by the relevant federal bodies, not by the center itself STEPASHIN explained.

Yeltsin Appoints Financial Representatives

· President Boris YELTSIN on Tuesday sacked

Oleg KUDRIN as deputy manager from Russia in the International Monetary Fund (IMF) and appointed Finance Minister Mikhail ZADORNOV to the position. He also appointed Economics Minister Andrei SHAPOVALYANTS as managing director of Black Sea Bank of Trade and Development from Russia. The bank was created in 1994 by the 11 member countries of Black Sea Economic Cooperation, with the authorized capital of $1 billion special loan rights, of which Russia holds 16.5 percent.

Gov't Meets Over Economic Plans

· Prime Minister Yevgeny PRIMAKOV on Saturday chaired a government meeting to review plans for economic and social development in 2000 to 2002. Economics Minister Andrei SHAPO-VALYUANTS presented a report on the economic situation. First Deputy Prime Minister Yuri MASLYUKOV noted that the middle-term socio-economic program will be revised to take into account results of talks with the International Monetary Fund (IMF) and the World Bank later this week. The draft program states it main goal is the, "formation of such a model of the Russian economy that has the potential for long-term dynamic growth and is able to ensure effective reproduction, allowing to solve the task of improvement of the living standard, modernization of the production apparatus, the strengthening of competitiveness, retention of the integrity and ensuring the security of the country." The program cites as priorities a revitalization of the Russian economy and the start of 4 percent to 6 percent growth, to be maintained for eight-ten years. The program has three stages. The first, sets this year as a target the expansion of national production, with a focus on food, light industries, household electronics and other sectors. The second stage is creating a financial base for expanded reproduction, in particular by through a lower tax burden of enterprises. The third stage, for 2001 to 2002, is a plan to boost investment demand and intensive renewal of the production apparatus.

Business

US-Russia Expand Airspace Agreement

· Director of the Russian Federal Aviation Service Gennady ZAITSEV and US ambassador to Russia James COLLINS have signed a protocol amending the January 14, 1994 intergovernmental agreement on air services. The agreement will open to US

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airlines cross-polar routes through Russian airspace. It will also serve as a basis for further bilateral cooperation in civil aviation and broader commercial opportunities for Russian and US airlines.

Russia Seeks To Modernize It Air Industry

· Over the past six years, Russia's air companies have scrapped 2,735 outdated plans and acquired only 32, including 13 planes and 19 helicopters. The Federal Aviation Service (FAS) on Monday said that the discharged planes include 237 air-carrier planes, with a capacity of no less than 50. To re-equip Russia's aviation fleet, 597 planes and 114 helicopter will be needed over a period from 1999 to 2007. At that point, another 3,400 aircraft, including 518 air-carrier planes will have been grounded. The 1999 budget sets four billion rubles ($159 million) for aviation-leasing purposes, but that sum is not enough to meet the industry's needs. There are several reasons why few new aircraft are not bought. These include high prices, a low technical level, and lack of after-sale maintenance system arrangements. In terms of leases of Western aircraft, their profitability has lowered following the ruble slump, causing a reduction in leasing operations by all companies except Aeroflot airlines. Russia uses 49 foreign planes with a 50-plus capacity.

Domestically, the chief designer of the Russian Aviation Consortium, Valentin KLIMOV said Russia should produce at least 20 air-carrier planes to keep the nation's aviation industry afloat. In 1999, Russian plants are capable of building 23 such planes. Ten of Tu-124s account for Ulyanovsk, three Il-96-300s for Voronezh, three Tu-214s for Kazan, and seven 154Ms for Samara, KLIMOV said. "The issue is that one should move from talk about that to a concrete order for a certain amount of planes," he stressed.

ment of energy resources, and cooperation possibilities. Along with Baltic Sea countries, interest in the conference has been shown by Ukraine, Belarus, Austria, the US, and other countries. Russian Deputy Minister of Fuel and Power Viktor KUDRYAVY and departmental chiefs of Russia's Gazprom and Unified Energy Systems companies are expected to attend the conference. KUDRYAVY will present a report at the conference and meet with Pablo VENAVIDES, Director-General of the European Commission's Department of Energy, and with Latvian Cabinet ministers.

Estonian Trade Still Dependent On Russia

· According to a report by the Statistics department, Estonia's second major foreign trade partner is Russia, accounting for more than 15 percent of its imports and about 9 percent of Estonia's entire exports. Russia is second place in imports after Finland and fourth in exports after Finland, Sweden and Latvia. In February, Estonia's foreign trade turnover made 6.6 billion Estonian kroon. Of that sum, 42 percent were exports, while 58 percent on imports. Foreign trade deficit makes up one billion kroon, which is a 0.7 billion drop from February, 1998. The leading export articles are agricultural products and foodstuffs, as well as textile industry articles. Their share makes about 30 percent of the total amount of exports, and keeps growing. The same trade groups occupy a sizable place in Estonia's imports, although the leading articles there are the import of cars and different equipment, which accounts for almost 25 percent of the entire imports.

Primakov Postpones Ukraine Visit

· Prime Minister Yevgeny PRIMAKOV, suffering a back spasms, has postponed his trip to Ukraine scheduled for today until April 22nd to 23rd. The government stressed that the postponement of the visit will not affect, "the content of the program of the forthcoming visit by the Russian head of government to the Ukrainian capital, during which the fifth meeting will be taking place of the joint Russian-Ukrainian commission on cooperation and a quadrilateral meeting on the settlement of the Trans-Dniester problem." PRIMAKOV intended to hold in Kiev a number of meetings with Ukrainian President Leonid KUCHMA, Prime Minister Sergei PUS-TOVOITENKO, leaders of the parliament and the Foreign Affairs Ministry. Following meeting, the sides

European Republics

Riga Opens Power Industry Conference

· A conference on cooperation between Black Sea countries' power industry opened in Riga today. More than 400 delegates, representing the European Commission, the ministries, banks, power, gas and oil companies of 20 countries will discuss possibilities for attracting investments in this sector of the economy, the countries' interests in the develop

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were to sign a package of bilateral documents on development of trade and economic cooperation between the two countries.

South Caucasus & Central Asia

Russia To Hand-Over Land To Georgia

· The Russian cabinet has allowed the Defense Ministry to turnover some real estate no longer needed by its military bases to Georgia. A governmental executive order to the effect was signed on April 3rd. The hand over will be according to international commitments, including the bilateral treaty of 1995 on the Russian military bases in Georgia.

Georgia Calls For Negotiations With Abkhazia

· Georgian President Eduard SHEVARDNADZE believes that a direct dialogue with the Abkhazian leaders should continue. He said that Georgian Minister of State Vazha LORDKIPANIDZE will join the negotiating process for the settlement of the conflict in the coming days. SHEVARDNADZE said that, "it is necessary to step up the dialogue with Abkhazian leaders, in order to find a way out of the deadlock, in which the process of the settlement of the Abkhazian conflict found itself." The Georgian President urged the Abkhazian side to maintain a constructive dialogue with the Georgian leaders. Foreign Minister Irakly MENAGARISHVILI said that Ukrainian leaders have confirmed their willingness to facilitate a negotiated settlement of the conflict in Abkhazia. Kiev has said it is ready to send its representatives to the UN mission in the Abkhazian conflict area. Ukraine also wants to take part in the efforts aimed at forging a dialogue between Georgia and Abkhazia, adding that their delegations will meet in Kiev in May. Abkhaz representative for Vladislav ARDZINABA, Anri DZERGENIA expressed disappointment in the Commonwealth of Independent States (CIS) Summit resolution on the Abkhaz conflict. He objects to a clause in the resolution calling for the creation of an interim Abkhaz-Georgian administration in Abkhazia's Gali region with Russian and UN participation.

Azerbaijan Halves Oil Output

· The BP Amoco led Azerbaijan International Operating Company (AIOC), which develops the Azeri-Chirag-Gyunsheli oil field, was forced to cut its output in half on Tuesday due to the prolonged closure of the Baku-Grozny-Novorossiisk pipeline. Vice President of the State Oil Company of the Republic of Azerbaijan (Socar) Ilkham ALIYEV said that the situation emerged after Russia's Transneft company failed to pay the bill from the Chechen oil company for oil transportation through Chechen territory. Chechnya says Russia owes it 100 million rubles ($4.13 million) for security personnel to guard the pipeline. ALIYEV said more Azeri oil will be pumped to the west through the Baku-Supsa pipeline to the Black Sea coast of Georgia, which has proved to be an important alternative route. Oil experts say, however, that AIOC will not be able to pump the 300,000 tons of oil which was to be delivered to Novorossiisk in April to Supsa in just one month. The throughput of the western pipeline which became operational in December ,1998 with a capacity of 40,000 barrels of oil a day. The northern pipeline's capacity is at least 2.5 times greater. The Baku-Novorossiisk pipeline has carried over three million tons of Azeri oil since it became operational on October 25, 1997.

Kyrgyz Prime Minister Dies Of Stomach Cancer

· Kyrgyz Prime Minister Zhumabek IBRAIMOV died on Sunday due to stomach cancer. He was appointed prime minister in December, after President Askar ALIYEV dismissed the government and accused it of incompetence. Shortly thereafter, IBRAIMOV was diagnosed with stomach cancer. Three weeks ago he underwent an operation in Moscow to treat the complications as a result of the cancer. He underwent a similar operation in Moscow in 1995. Kyrgyz newspapers had reported that IBRAIMOV was fully stable after the operation. He was 55 years old. Interfax new agency has reported that Osh Oblast Governor Amangeldy MURALIYEV is the most likely candidate to succeed IBRAIMOV.

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