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 8, 1999

Russian Federation

Politics

Bykov Charged With Money Laundering

· Following arrest warrants issued for oil-to-media tycoon Boris BEREZOVSKY, former commercial director of Aeroflot Airlines Nikolai GLUSHKOV, and founder of Agro Bank Alexander SMOLENSKY, Russian First Deputy Interior Minister Vladimir KOLESNIKOV today announced that a criminal case has been launched against Anatoly BYKOV, the chairman of the board of the Krasnoyarsk Aluminum Plant. BYKOV, who is conveniently on a business trip in the US, has been charged with "laundering of money obtained by illegal means." "The police have lots of questions to ask Mr. BYKOV...and we would really appreciate it if he returned as soon as possible to continue the conversations," KOLESNIKOV said. He declined to say who had opened the case. BYKOV has been feuding for months with Krasnoyarsk Governor Alexander LEBED, over control of the Siberian region's energy and metal sector. Krasnoyarsk Aluminum Plant, the nation's second largest aluminum smelter, produced 807,000 tons of aluminum in 1998.

The continued attack on top oligarchs on the surface appears to show that the Prime Minister's crack down on economic crimes is serious. But, looking below the surface, it is easy to see that these arrests are being made for political gain. Our Home is Russia leader Vladimir RYZHKOV said the whole judicial process in Russia has become politicized. Prime Minister Yevgeny PRIMAKOV in his personal battle with BEREZOVSKY has taken the upper hand. BEREZOVSKY has said that the charges were influenced by PRIMAKOV and that he is trying to use his post to influence President Boris YELTSIN, the mass media, and Russian secret services.

Primakov To Wait For Impeachment Vote

· One week from today the Russian State Duma will consider the impeachment of Russian President Boris YELTSIN. The impeachment vote is the opposition's best effort so far to oust the President. YELTSIN has been charged with five impeachment counts approved by a Communist led committee in February. These include causing the collapse of the Soviet Union in 1991, improperly using force against lawmakers in 1993, launching a botched war in Chechnya in 1994-1996, ruining Russia's military strength, and waging genocide against the Russian people with economic policies that impoverish the nation. While impeachment is part of the democratic process, the spear-headers of the vote want to roll back democratic reforms. If the motion is passed by the Duma, it will be submitted to the Federation Council and Russia's two highest courts for approval. It is unlikely that YELTSIN will be impeached. Many Russian citizens are more concerned with their pocketbooks than ousting their leader. Even still, the vote is highly politicized. Chief of the Government Information Department Igor SHCHYOGOLEV said, "Prime Minister Yevgeny PRIMAKOV and the government are categorically against impeaching the President of Russia." However, when asked, he could not say whether PRIMAKOV will address the Duma on YELTSIN's behalf prior to the vote.

Meanwhile, PRIMAKOV has refused to be hospitalized for treatment of his back pain and instead will be treated at home. Medics believe that PRIMAKOV's diagnosis presup

Today's News Highlights

Russia

Tax Collection Improves Slightly

New Rus Business Newspaper

European Republics

ERA Pank Proved Bankrupt

Ukraine Seeks More IMF Loans

South Caucasus & Central Asia

Georgian Pipeline: Good Route

Oil Tanker To Leave Supsa

Central Asian Leaders Meet

Rus-Tajik Military Cooperations

Politics-Economics-Business

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Thursday

April 8, 1999

Intercon's Daily

poses restrictions on the ability to work for a period of several days, as well as medical treatment, which includes confinement to bed for the purpose of reducing pressure on the backbone.

Economy

Ruble = 25.12/$1.00 (NY rate)

Ruble = 25.09/$1.00 (CB rate)

Ruble = 27.06/1 euro (CB rate)

Tax Collection Improves Slightly

· Tax Minister Georgy BOOS said that the government collected about $2 billion during the first quarter of 1999. Its target amount was $1.9 billion. BOOS made this announcement just as an International Monetary Fund (IMF) mission arrived in Russia to work out loan details. Russia had promised the IMF to collected about $11 billion for 1999. BOOS said that the fulfillment of that goal and other IMF demands will prove to be "very difficult." The IMF has said that Russia must improve its tax collection to qualify for new loans. Russia hopes to receive up to $8 billion from the IMF to pay off $4.5 billion to the IMF to service previous loans. A final decision on the loan may be made by the IMF board of directors in May.

IMF Returns To Finalize Negotiations

· A mission from the International Monetary Fund (IMF) led by deputy director of the IMF second European department Gerard BELANGER arrived in Moscow Wednesday. The mission on Friday will hold consultations with Finance Minister Mikhail ZADORNOV, Central Bank Chairman Viktor GERASHCHENKO, First Deputy Prime Minister Yuri MASLYUKOV, and the Taxes Minister Gregory BOOS to discuss parameters of the economic and credit-monetary policy. The international financial organization is ready to help Russia in its difficult times, IMF Managing Director Michael CAMDESSUS said during his visit to Moscow on March 27th to 29th. CAMDESSUS hopes that the IMF and Russia will agree on another installment (between $4.8 billion to $7 billion), due to agreements on key aspects of the 1999 program of the cabinet and the Central Bank. These agreements, include a 2 percent budget profit, higher revenues than the spending with the exception of money spent to service the foreign debt. MASLYUKOV believes that there are not too many problem left to be resolved. He said, Russia is, "thoroughly preparing to work with the IMF mission"

and optimistic about the joint work results. Russia hopes to finalize the talks within 10 to 12 days. The IMF mission will stay in Moscow until April 24th. Ariel COHEN, senior political analyst at the Heritage Foundation, in USA Today compared granting IMF further lending to Russia to giving more drugs to an addict. He said, "Addition funds now only would prolong Russia's economic agony, postpone its day of financial reckoning and perpetuate the poor conditions under which Russian and foreign businessmen must work. New credits also would effectively reward Russia for its anti-US positions on international security issues, most notable its opposition to the ongoing NATO airstrikes." He added, "Washington must tell Moscow that as long as it continues to assist US foes and remains recalcitrant in its opposition to vital US interests, it is unfair to the American people for the United States to help Russia continue its addiction to IMF loans.

Business

Three News Giants Form Business Newspaper

· The Financial Times, The Wall Street Journal, and The Moscow Times' publisher Dutch Independent Media Group, each with one-third of the newspaper's equity, are going to launch a Russian-language business and financial newspaper to be published in Moscow and St. Petersburg. The three shareholder have committed up to $10 million over three years. The first issue of the newspaper, so far without name, will appear on newsstands in August. The 12-page newspaper will come out five times a week, from Tuesday through Saturday. The initial run will make 10,000 copies. The editorial office will be based in Russia, but will draw on material from of the Financial Times and The Wall Street Journal. The paper is to be edited by the 27 year old Leonid BERSHIDSKY, currently business editor of The Moscow Times, with Anthony ROBINSON of the Financial Times acting as a consultant, The Wall Street Journal's European editor Frederick KEMPE as supervisory editor, and Independent Media chief executive officer Derk SAUER as managing director and publisher. This is the first time that the US and London-based fiercely competitive newspapers have joined forces, mainly to share the risks of the new venture in Russia. The Financial Times signed a joint venture with Izvestia in 1993. This effort ended when the newspaper was taken over by Uneximbank controlled by Vladimir POTANIN. SAUER noted that

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Kommersant Daily will be the newspaper's main competitor, but pointed out that it is moving in the direction of a general newspaper with more space devoted to politics and crime. SAUER said, "It is not a financial and business paper." He added, "We are pretty optimistic about the commercial viability of this newspaper." There is a strong demand in Russia for reliable and independent financial information.

Newsprint Supplies Threaten Info. Distribution

· The head of the Periodicals Publishers Group Alexander OSKIN said that the shortage of newsprint in Russia is raising the price of newspapers and magazines and threatening the distribution of information as many publishers face the brink of closure. He said that many mass media in the Samara region, where over 60 magazines and 300 newspapers are published, faced the risk of closure in the beginning of March. Subscribers did not get their city newspaper Samarskaya Gazeta for a week. St. Petersburg, Novosibirsk residents experienced the same thing. OSKIN noted that the Periodicals Publishers Group had been warning about the shortages in the cellular and pulp-and-paper industry since last autumn. He pointed out that the Economics Ministry said there were no problems with paper production in the country and that it had increased by 203,000 tons from the 1997 level. The problem is that cellulose and pulp-and-paper factories export over two-thirds of their products, often at prices lower than those offered on the domestic market.

Baltic republics and has not stopped deliveries amid any political friction, and local customers are always diligent with payments.

ERA Pank Declared Bankrupt

· The Estonian Central Bank announced that it has launched bankruptcy proceedings against ERA Pank. Last Fall, ERA Pank was given six months to find a new investor, but it failed to do so by the deadline, April 6th. The Central Bank noted that ERA Pank's obligations exceeded its assets by some 40 million kroons ($2.8 million), RFE\RL Newsline reported.

Ukraine Seeks New IMF Loan

· Ukraine is seeking an additional loan from the International Monetary Fund (IMF) to compensate for export losses caused by Russia's economic crisis. Ukrainian Central Bank chairman Viktor YUSHCHENKO said, "An IMF mission will start working in Ukraine in the third week of April." Ukraine is requesting as much as $400 million. He said that Ukraine could use the credit to replenish its currency reserves which fell as low as $945 million on March 31st. Russia accounts for 31.2 percent of Ukrainian exports, which fell by about 18 percent in 1998, a drop of $707.8 million. The Russian State Customs Committee reports shows that Russia's economic crisis continues to affect Ukraine. Exports to Russia dropped 65 percent on average in January to February as compared with the same period in 1998.

Deputy director of the IMF Second European Department Mohammed SHADMAN-VALAVI said that the actions of the Ukrainian government and parliament give reason to hope for the resumption of credits for real economy in Ukraine. At the same time the IMF representative noted that Ukraine is hesitant about the restructuring in energy and agriculture, and the holding of the administrative reform which is being declared rather than implemented. The IMF late March resumed a $2.2 billion aid package for Ukraine, which was frozen last Fall. Ukraine has received about $485 million of that sum.

South Caucasus & Central Asia

Georgia's Route: A Good Alternative

· The closure of the Baku-Grozny-Novorossiisk pipeline on March 29th has highlighted the benefits of the alternative route via Georgia. Azeri oil is now being pumped through Georgia's shorter and cheaper

European Republics

Lithuania Looks For Alternative Oil Imports

· Lithuanian Economics Minister Vincas BABILIUS said at an international conference on Investment in the Energy Sector of the Baltic Sea Region in Riga that Lithuania will not stop imports of Russian oil, but it is seeking alternative sources. Russian Deputy Fuel and Energy Minister Viktor KYDRYAVY said at the conference that modernization of the energy sector would take an estimated $80 billion from 1999 to 2010. He said investors could join in a string of construction projects already under way against the pledge of energy rates to remain unchanged until investment is recovered. KYDRYAVY called void the allegations that the Baltic states are in dangerous dependency on Russia as a key fuel exporter. He said Russia is interested in cooperation with the

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Western route to the Black Sea port of Supsa. One diplomat said, "It's a big victory for Georgia and a tremendous loss for Chechnya and ultimately for Russia." Vice President of Azeri State Oil Company (Socar) Akhmed ZEYNALOV said, "The closure of the Russian line is a catastrophe. You don't build a pipeline for it to be closed most of the time. We've known for a long time that we can't rely on the northern route and that's been proven yet again." He added, "The western route is becoming more and more attractive for everyone and since the first day of construction on the route it has proven to be a very sensible decision to have more than one export route." Azerbaijan International Operating Company (AIOC) said it wants to maximize use of the Georgian route since it has a lower tariff and the AIOC receives its own crude at Supsa instead of a lower-grade Urals blend at Novorossiisk.

Azeri Early Oil Departs Supsa On Tanker

· Today, the first tanker has been filled with early Caspian oil at Supsa on Georgia's Black Sea coast. The oil reached the Georgian oil terminal through a pipeline running from Baku on the Caspian sea coast via Georgian territory to its Black sea coast. The tanker Piemonte of the Italian company Agip will take nearly 80,000 tons of oil to a refinery in the Spanish town of Castellan. The construction of the Georgian stretch of the Baku-Supsa pipeline was completed in March, 1999. The capacity of the floating oil terminal three kilometers from Supsa is 150,000 tons and the oil storage facility in Supsa itself can hold 40,000 tons of oil in each of its four tanks. The Georgian International Oil Company said that the Baku-Supsa pipeline will be inaugurated on April 17, 1999. The presidents of Georgia, Azerbaijan and Ukraine and representatives of the US administration and international organizations, as well as foreign oil companies, are expected to attend the ceremony. After that, tankers are expected to be filled every seven to 10 days in Supsa. The Baku-Supsa pipeline's capacity will be tested as Baku has discontinued pumping oil through the northern Baku-Novorossiisk pipeline.

Central Asian Presidents Meet In Ashkhabad

· The Central Asian presidents of Turkmenistan, Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan are attending a summit in Ashkhabad on the Aural Sea. Participants plan to sign a Declaration on the results and to approve Turkmen President Saparmurat NIYAZOV as president of the International Fund on saving the Aral Sea. This is the third meeting of on the Aral Sea since the dissolution of the Soviet Union and the creation of the Commonwealth of Independent States (CIS). The Aral Sea is dead biologically and it is considered virtually impossible to restore the Aral Sea to its former size. The discussion now focuses on ecological revitalization of the region. The participants in the present summit will also discuss regional security and cooperation.

Rus-Tajik Discuss Military Cooperation

· Russian Defense Minister Igor SERGEYEV arrived in Tajikistan Monday for a three-day official visit which focused on the multilateral efforts to strengthen military and military-technical cooperation between Commonwealth of Independent States (CIS) countries. The talks were held within the context of the forthcoming Moscow meeting between the Presidents of Russia and Tajikistan in mid-April. A number of important documents are expected to be signed during the summit. During the visit, SERGEYEV met with President Emomali RAKHMONOV and the Tajik Defense Minister Sherali KHAIRULLAYEV and formalized bilateral military and technical cooperation. The document envisages a wide range of joint measures in 1999 with a view to developing military and technical cooperation both on a bilateral basis and under the CIS Collective Security Treaty. The sides also discussed draft agreements on cooperation in the defense industry and on safe conditions for the storage of radioactive substances and the status of and terms for the stay of a Russian military base on Tajik territory. A treaty on the status of and conditions of the keeping of the base on the territory of Tajikistan will be signed by RAKHMONOV and Russian President Boris YELTSIN in Moscow.

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

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