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

Friday, April 9, 1999

Russian Federation

Politics

Yugoslavia To Join Rus-Belarus Union

· Russian President Boris YELTSIN and chairman of the High Council of the Rus-Belarus Union, Belarus President Alexander LUKASHENKO may meet in Moscow this weekend to discuss an initiative put forward by Yugoslav President Slobodan MILOSEVIC, who asked for membership in the Rus-Belarus Union. The request was conveyed through State Duma speaker Gennady SELEZNYOV, after returning from Belgrade on Thursday. SELEZNYOV advocates expansion of the union to include not only Yugoslavia, but Ukraine and Bulgaria as well. LUKASHENKO and Prime Minister Yevgeny PRIMAKOV have already discuss the Yugoslav initiative by telephone. LUKASHENKO has, "actively backed up the idea of the creation of the union of the three countries." He has ordered ministries and departments to prepare a draft statement on the union of Russia, Belarus, and Yugoslavia. LUKASHENKO said that, "this union is possible even if we have no common borders." YELTSIN said on Thursday that Russia could not accept the recently aired idea of Yugoslavia's accession to Russia because its is inexpedient from the legal and political point of view. He also noted that Yugoslavia's joining the Rus-Belarus Union was impossible, at least without Yugoslavia' national referendum on the matter. The Yabloko party criticized Yugoslavia's request. They suggest that the Union should add Iraq and create an organized totalitarian union. The possible expansion shows the hysteria that is surrounding NATO airstrikes on Yugoslavia.

FSB Reshuffle, Putin's Resignation?

· Vladimir PUTIN has refuted rumors on his resignation from the post of director of the Federal Security Service (FSB) as reported in Moskovsky

Komsmolets. "I know nothing about my resignation," he said today. "I called the President's chief of staff today in the morning, and he told me that it was all nonsense," said PUTIN, director of the Federal Security Service and concurrently secretary of the Russian Security Council.

One week ago, President Boris YELTSIN shifted and trimmed personnel at the FSB. He dismissed Colonel General Valentin SOBOLYEV as first deputy director of the FSB and appointed him deputy secretary of the Security Council. Lieutenant General Yevgeny SOLOVYOV was appointed deputy director and head of the personnel department. In addition several FSB officials have been dismissed without re-appointment. These include head of counterintelligence protection of strategic installations Mikhail DEDYUKHIN, his deputy Alexander IZMADENOV, and head of counterintelligence operations Alexei PUSHKARENKO.

Tuganov Assassinated In St. Petersburg

· Leader of the St. Petersburg branch of Russia's ultra-nationalist Liberal Democratic Party headed by Vladimir ZHIRINOVSKY was assassinated today outside his home in Russia's second-largest city. Gennady TUGANOV was shot eight times in the head as he tried to enter his apartment. He died on the spot. Party officials determined that the killing was probably a contract hit to stop TUGANOV's "political and public activities." Police have launched an investigation, but so far no suspects or eyewitnesses have been found.

Today's News Highlights

Russia

Svyazinvest Tender Delayed

BMW Assembly In Kaliningrad

European Republics

Estonia To Cut Budget Spending

Lithuania's Unemployment Grows

South Caucasus & Central Asia

Adjar Investigates Absurd Claims

EX-IM Names Panaro As Rep.

Armen. Stops Oil, Gas Searches

Kazakh-Turkmen Pipelines

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Economy

Ruble = 25.09/$1.00 (NY rate)

Ruble = 25.03/$1.00 (CB rate)

Ruble = 26.91/1 euro (CB rate)

Nov Dec Jan Feb Mar Apr

Russian Banks Illegally Move Funds

· Moscow police have stated that Russian commercial banks and 17 companies illegally transferred $600 million out of the country in January and February. A police search found nine banks and 17 companies were involved in illegal transfers of hard currency out of the country. After the search, bank Russkiy Bankirskiy Dom, Bank Absolut, East-Bridge bank and companies Lang and Profodezhda were said to have illegally transferred $400 million aboard, The Journal of Commerce reported.

Investor Protections Still Needed

· Head of the Federal Commission for the Securities Market Dmitry VASILIEV called for Russia to toughen criminal sanctions to fight abuses against investors and impose a fairer financial system. He suggested the nation introduce a sentence of imprisonment for up to five years for unauthorized individuals carrying out financial service activities. He said criminal penalties should be imposed on companies which do not disclose to the market the full financial information that is required, the Financial Times reported. If implemented these suggestions would strengthen Russia's investor rights, which have suffered abuses. An example, is the case of oil company Yukos ignoring minority shareholders' voting rights and diluting their share holdings through issues of new shares. VASILIEV urged investors to

pursue cases more frequently through the legal system. He pointed out that 125 cases had been brought to the Commission in 1998 and that investors had won three-quarters of them.

Governors Criticize Rail Ministry Tariffs

· Russian governors, representing their region's rail users, including shippers of petroleum products, autos, and construction equipment, criticized the government's tariff policy at a special meeting in Moscow on Friday. Chairman of the Federation Council on Transportation Tariffs committee, Krasnoyarsk Governor Alexander LEBED said that the Railway Ministry has unlawfully raised rates on imports and exports. He said, "The regions are interested in decreasing tariffs. So far, we only have stacks of unfulfilled transport obligations by the railways." The governors said they won't accept additional demands from the Railway Ministry, including assuming budget responsibility for the welfare obligations of the rail divisions and helping to subsidize passenger operations, The Journal of Commerce reported. The committee will meet with Railway Minister Nikolai AKSENENKO and the head of regional rail divisions on April 26th. LEBED has said the meeting will be a showdown on tariffs. "We have enough instruments to make [the ministry] take into account the consolidated opinion of the regions. The fact that the Federation Council so far hasn't expressed its opinion is only a matter of time." Anti-Monopoly Policy Minister Gennady KHODYREV said, "We will be regulating tariffs directly. We will directly participate in tariff policy in order to observe the interest of the national economy...We categorically don't agree that the Ministry of Anti-Monopoly Policy will only set the rules and the tariffs will be fixed by the Ministry of Railways."

Business

Svyazinvest Tender Postponed

· Russia has postponed the selloff of the large telecommunications company Svyazinvest contrary to initial plans which said it will be sold in 1999. First Deputy Property Minister German GREF said that the Ministry will not sell 25 percent minus two shares in Svyazinvest and will not issue convertible bonds in relevance with this block. GREF said several financial consultants are assessing ways to increase the investment attractiveness of the company before the trading. But the final choice is up to the ministry,

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and it is still hesitating. It is possible the Ministry will merge Svyazinvest with Rostelecom and give them a new license. If that happens, only Svyazinvest shares will be used.

Avtotor-BMW To Sign Assembly Agreement

· The Russian firm Avtotor and the German Bavarian Motor Works (BMW) company today announced plans to open an assembly plant for the production of BMW and Landrover vehicles at an autoworks in Kaliningrad. Avtotor representative Yevgeny RUMYANTSEV said the first BMW vehicles of a fifth series are expected to come off the assembly lines in July and the assembly of Landrover vehicles is to start in August. Production will increase to 10,000 vehicles a year by 2001. At the first stage, autoparts are to be supplied from Germany. However, by the year 2002, approximately 40 percent to 45 percent of parts, primarily vehicle body components, will be produced in Kaliningrad. The vehicles to be assembled in Kaliningrad will be sold both throughout Russia and outside it. Initial investment in the project will be 50 million Deutsche Marks. According to estimates of the BMW concern, the capacity of the Russian market now is assessed at one million of new cars a year, and the forecast volume of sales of new BMW cars for 2002 in Russia will come to about 1.5 million cars. BMW experts estimate the present fleet of BMW cars in Russia at 120,000 cars. Russian Prime Minister Yevgeny PRIMAKOV on Wednesday met Bavarian counterpart Edmund SCHTOIBER, who is in Moscow on a visit at the invitation of Moscow Mayor Yuri LUZHKOV. PRIMAKOV and SCHTOIBER discussed ways to deepen Russian-German economic cooperation.

Industrial Leaders Appeal To President

· Some 30 leaders of major Russia industrial enterprises signed an open address to the Russian President Boris YELTSIN and all responsible politicians, carried by the Russian national newspapers on Tuesday, calling on the government to report realistically on the market reforms in Russia. "Political inadequacy of Russian authorities may lead the country to a disaster, to the triumph of the blackest mutations of old ideologies," the appeal said. The industrialists say they are worried that, "a real state capitalism is not being formed fast enough." Without expediting the process Russia will be unable to solve its pressing strategic problems. The latest interna

tional developments are seen by the industrialists as a strategic challenge to Russia as a whole. Russia needs, "a powerful, intentional, strategic turnaround which will be loyal to the targets accepted by society earlier and at the same time bring these targets in line with new realities," the statement stresses. Industrial leaders hope the Russian government will pursue, "substantive corrections to the former course of unrestrained and one-sided openness." They believe that, "isolationism is not needed, it is harmful to Russia," but it is necessary to opt for self-reliance in building a new, modern Russia. The statement stresses the need for, "a strategic reform of the state which would rid us and our descendants in the next century of the impending nightmare of the country's new break-up." The weakness of power, "at this responsible moment has no historical justification," the industrialists say in the statement signed, by general director of the Krasnoyarsk Aluminum Plant Alexei BARANTSEV, general director of the Elektrosila Production Amalgamation Ravil URUSOV, general director of Sibtyazhmash Pyotr LUSNIKOV, board chairman of the Oskol Metallurgical Plant Alexander UGAROV, entrepreneur Lev CHERNOI, and general director of the Lebedinsky Ore-enrichment Plant Igor SOKRUTO, and others.

European Republics

Telecom Tariff Council Headed For Dismissal?

· The parliamentary commission investigation the activities of Lattelekom announced on Tuesday that it will ask the government to dismiss the Telecommunications Tariff Council, arguing that its work it "incompatible" with the interests of the state and taxpayers, RFE\RL Newsline reported. In January, the Council approved an increase in telephone rates effective April 1st. Transportation Minister Anatoly GORBUNOV last week issued a decree overriding that decision. The council has asked the Justice Ministry to rule on GORBUNOVS' move.

Estonian To Cut Budget Expenditures

· Estonian Finance Minister Siim KALLAS said that the government is considering cutting budget expenditures by up to 1 billion kroons 9$71.4 million). He was unable to say which government institutions and programs will be targeted, but he noted that reductions will be made by cutting operating expenses. The final figure will become available at the

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end of this month, when the Finance Ministry submits a negative supplementary budget to the government. The volume of this year's budget, which must be balanced by law is 18 billion kroons.

Growing Unemployment In Lithuania

· According to the Lithuanian Statistics Service, unemployment rates in Lithuania have grown to the level of 8.5 percent as of the beginning of April, 1999, against 7.5 percent reported in the same period last year. Men account for the majority with 52.3 percent unemployed. Unemployed women make up 47.6 percent. Every tenth unemployed person who is registered was fired by his employer. The city of Shaulai is has the highest unemployment rate with 13 percent of the working population unable to find jobs. One of the reasons for growing rates of unemployment in Lithuania is the economic crisis in Russia and Belarus, with which Lithuania maintains close economic contacts, the Lithuanian statistics reported.

South Caucasus & Central Asia

Adjaria Investigates Assassination Scheme

· A leading security official from Adjaria is in Tbilisi investigating claims by Georgian Interior Ministry employee Omar KEDELASHVILI that he was ordered by Georgian intelligence to assassinate Adjar parliament chairman Aslan ABASHIDZE. Georgian security officials have absolutely denied KEDALSHIVILI's allegations. Comment: These accusation are similar to ABASHIDZE's allegations that Georgian parliament chairman Zurab ZHVANIA was working on overthrowing ABASHIDZE by using Georgian border guard troops. This is an attempt to blacken the Georgian government's reputation in order to advance what ABASHIDZE believes are his political parties interests: seeking control of the Georgian parliament in the October elections.

Panaro Appointed Caspian Representative

· The US Export-Import Bank has appointed Julie PANARO as its representative to the Caspian

region, The Journal of Commerce reported. She will coordinate the bank's participation in the US government's Caspian Sea Initiative, which involved the Overseas Private Investment Crops and the US Trade and Development Agency. She will work to arrange financing of US exports to be used in the Trans-Caspian gas pipeline, the Baku-Ceyhan transport project and other major projects in Turkey and the Caspian region.

Armenia Stops Oil and Gas Prospecting

· Armenian Energy Minister Meruzhan MIKAELYAN said all prospecting for oil and gas in the country has been stopped because of lack of money. He said on Wednesday that Armenia does not have enough money to continue this work, but its US partners are continuing efforts to find funding for the project. The Minister noted that progress has been made in the creation of a consortium to build a gas pipeline which will connect Armenia and Iran. He believes that the consortium will be established this year. The project will require $120 million to $150 million.

Turkmen-Kazakh Oil and Gas Projects With China

· Turkmen President Saparmurat NIYAZOV and Kazakhstan President Nursultan NAZARBAYEV agreed that the export of oil and gas to China will be given priority in the next century. Turkmenistan has signed and agreement for a gas pipeline towards China, while Kazakhstan has plans for an oil pipeline to China. Turkmenistan in 1998 commissioned a feasibility study for a gas pipeline to China and Japan with an annual throughput capacity of 30 billion cubic meters. Kazakhstan and China signed an agreement on construction of a $3 billion, 3,000 kilometer oil export pipeline in September 1997. The technical and economic substantiation studies of both projects backed by the governments, are under way. Issues of uniting efforts of the two neighboring states in the future in projects of the oil and gas complex were the main theme of Thursday's talks. Kazakh Prime Minister Nurlan BALGIMBAYEV will travel to Iran on April 10th to discuss oil exports and sales of gain and engineering products.

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

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

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