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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, May 11, 1999

Russia's Oil Shares In Demand

· Demand for Russia's oil shares pushed the price per share of Russia's biggest oil companies up by almost 50 percent in the past month, the Financial Times reported. On Friday, Russia's largest oil producer LUKoil was trading at $10 compared with $6.70 a month ago, while Surgutneftegaz, the nation's third biggest producer, was trading at $0.17 up from $0.11. Investors' interests is tied to the rise in world oil prices. Oil shares are also attractive because production costs are only half of what they were before the crisis. Analysts point out that margins are widening as companies earn hard currencies on their exports, but pay costs in the ruble, which has lost 74 percent of its value since August. Fixed taxes for the oil industry have also proved to be a benefit. Russia has not raised the excise tax of 55 rubles per ton, equivalent to $9.20 before the devaluation, but now only about $2.30. The industry remains the main target for increased taxation. Russian producers are hindered by outdated equipment, a limited pipeline system that can only export one-third of total production and a domestic market flooded with too much oil and not enough cash.

In addition, the Russian government is banning debtor oil companies access to the country's oil and gas pipelines. Companies with taxes due for payments since April 1st will be banned from the network for the next month and debts pre-dating April should be paid by December 31st. This policy is outlined in a document agreed on between the Russian government,

Russian Federation


Yabloko Supports Impeachment Of Yeltsin

· The Russian State Duma has confirmed that debates on the impeachment of President Boris YELTSIN will begin on May 13th and continue through May 15th. Liberal economist and leader of the Yabloko Party, Grigory YAVLINSKY said his party will vote in favor of opening impeachment proceedings against YELTSIN. The party specifically supports the article which charges YELTSIN with illegally launching a war in Chechnya. The Yabloko party has 45 out of the Russian State Duma's 450 seats. "We believe that the question of charges against the president is the question of responsibility of authorities," YAVLINSKY added. He pointed out that the consideration of this issue in the State Duma should demonstrate the "inevitability of punishment" for present and future authorities in Russia. The Communist Party led by Gennady ZYUGANOV has spearheaded the impeachment measure. He said that 259 of 450 deputies support impeachment. The measure to open proceedings must pass with two-thirds of the Duma or 300 votes on Thursday. ZYUGANOV also pointed out that the Russian people have effectively condemned YELTSIN's policies, noting his single digit approval rating. However, many opinion polls show that Russians oppose impeachment, for fear it would destabilize the country. The complicated impeachment procedure is unlikely to oust YELTSIN before his term expires in the summer of 2000.


Ruble = 24.04/$1.00 (NY rate)

Ruble = 24.00/$1.00 (CB rate)

Ruble = 25.89/1 euro (CB rate)

Today's News Highlights


Oka Cars Switch To Cash Sales

Transero Reports 1998 Results

European Republics

Adamkus Offers Mayor PM Post

Latvian Econ. Min To Resign?

South Caucasus & Central Asia

Arco Pulls Out Of Azeri Venture

Greek President In Armenia

Kyrgyz Hosts Int'l Trade Fair

Tajik Joins Custom Union




May 11, 1999

Intercon's Daily

the International Monetary Fund and the World Bank at the end of April.


Oka Car Sales Shift From Barter To Cash Only

· Oka cars, a small part of Tatarstan truck maker KamAZ's business, has proved that managers can break away from the cyclical barter sales, which dominated the Soviet economy. The company's reliance on barter instead of cash was inefficient amounting to only 15 percent of its costs. The company was forced to offer cars at a substantial discount to suppliers, which in turn resold them still considerably below the retail price. One consultant said, "You could find Okas on sale in Moscow more cheaply than at their official retail price in dealerships next to the factory." Ravil MURATOV, Tatarstan's deputy prime minister and chairman of KamAZ who helped the factory switch to cash trading, said, "I honestly believe that barter is the biggest problem in Russia. There should be legislation to deal with it." As part of restructuring measures, MURATOV bluntly told managers to either implement a shift from barter to cash or be fired. In addition consultants were hired to help, with funding from the World Bank. The Oka subsidiary is producing over 2,200 cars per month, almost twice the number of KamAZ trucks. Oka claims to have been profitable since 1998. Oka's success is partially due to the sharp devaluation of the ruble. As the price for foreign cars shot up, the Oka, a squat boxy car at under $1,300, became more affordable for Russians, Financial Times reported.

Meanwhile, a new Karachi-based joint venture set up by Tatarstan truck maker KamAZ and the Pakistani company Sindh Engineering plans to produce over 10,000 Oka cars annually. The parties' shares in the enterprise have yet to be specified as it is still unclear whether spare parts and car units will be produced in Russia or in Pakistan. Tatarstan's First Deputy Economics Minister Anvar KARIMOV believes the latter option is preferable as Pakistan has left-side traffic and the cars will be mainly used there. Pakistani experts will handle this issue during their visit to Tatarstan in late May. The project, supervised by Pakistani Prime Minister Nawaz SHARIF, should start serial production of the cars by the end of 1999.

Transaero Reports 1998 Results

· Despite the August 17th financial crisis, Transaero

Airlines' results for the year 1998 are solid. In 1998, Transaero operated 18,729 scheduled flights, carrying 1.2 passengers, which represents only a 5 percent decline in the number of passengers compared with 1997. The number of passengers on the routes between Moscow and Berlin, Tel Aviv, Frankfurt, Astana, Kiev, Kishinev, Tashkent, and Odessa increased. The average load factor on all routes has stayed at over 64 percent, while raising to over 70 percent on the flights between Moscow and Almaty, Karaganda, Ekaterinburg, Irkutsk, Nizhnevartovsk, and Novosibirsk. Transaero Airlines said that in 1998, it maintained its high standards of flight safety and its accident-free record. In the past year, Transaero Airlines open new direct routes and a Cross-Polar flight. It became the first Russian airlines to offer regular flights on the Boeing 787-700 and received a US FAA license for independent technical maintenance of US manufactured aircraft, including B-737, B-757, and DC-10. Transaero entered into, and successfully maintained cooperative code sharing relations with the Czech CSA and the Latvian Air Baltic Airlines. In February of 1999, Transaero also entered into a code sharing agreement with the Krasnoyarsk KrasAir airline—the first code sharing agreement ever between two Russian airlines. Transaero worked to improve its cooperation with the ticketing agents, introducing a unified system of reservation classes, and establishing a new bonus system that will provide better incentives for bigger and more efficient agents.

Russian Planes Pass Noise Requirements

· The President of the Russian Association Union of Aviation Engine Construction Viktor CHUIKO announced on Wednesday that new Russian passenger plans fully met international requirements on noise levels for the next century. According to him, such planes include long-range aircraft Il- 96-300, Trade union-204, Tu-334, Be-200 and a plane for regional air-routes Il-114. The International Civil Aviation Organization (ICAO) introduces new noise requirements after the year 2002. Although these Russia's planes are equipped with modern technology, it is unclear whether Russia will manufacture these planes on a mass scale and which airlines would acquire them. "If we manufacture two or three planes a year as before, then this number will be insufficient for the replacement of the aircraft fleet gradually becoming obsolete," CHUIKO said

When you need to know it as it happens




May 11, 1999

Intercon's Daily

European Republics

Vilnius Mayor Offered Premiership

· Lithuanian President Valdas ADAMKUS on Monday offered the post of prime minister to Vilnius Mayor Rolandas PAKSAS, who is a high-ranking member of the ruling Conservative Party. He is also a part-time stunt pilot and former flight instructor. On May 3rd, the President sacked Prime Minister Gediminas VAGNORIUS, who is one of the Conservative Party leaders and who received "political no-confidence" from the head of state on April 19th, triggering a government crisis. The Conservative faction in the parliament and the party's leaders said they will not nominate a member of their party for premiership. However, the President believes that the Conservatives and their partners in the coalition, Christian Democrats, who jointly have a majority of seats in the parliament should nominate a member of their party for the post of prime minister. The Vilnius Mayor asked the President to give him, "28 hours to think it over and consult my colleagues in the party." The parliament faction and the party's leaders are expected to hold one more meeting this afternoon to make the final decision on the issue.

Latvian Economics Min. Resignation Demanded

· Latvian Prime Minister Vilis KRISHTOPANS sent a letter to the New Party, the junior coalition partner, on Monday demanding the resignation of Economics Minister Ainars SHLESERS. KRISHTOPANS said that under SHLESERS the ministry had been slow in privatization and preparation of anti-dumping legislation. Under Latvia's Constitution, the prime minister can sack a minister at will, but needs parliamentary approval of any new candidate. The KRISHTOPANS Cabinet has been fraught with bickering between the nationalist Fatherland and Freedom Party and the centrist New Party. The main dispute is the New Party's proposal to scrap two non-portfolio ministerial posts held by Fatherland members. Analysts said that SHLESERS' sacking may lead to a major Cabinet reshuffle, with the possibility of the removal of KRISHTOPANS himself. The six-month-old government has been seen as struggling. Reuters reported analyst Janis IKSTENS who said, "It could be a way for Latvia's Way to get rid of KRISHTOPANS, who has been neither successful nor popular. Privatization is where it was six months ago...and there is a fairly obvious budget deficit."

The new Party is meeting today to review the letter and consider quitting the Cabinet.

People's Party Call For No Confidence Vote

· Latvia's main opposition People's Party spokesman Ugis SALNA said, "We are in the process of formulating the necessary documents to have a vote of confidence in Prime Minister KRISHTOPANS, and consequently his entire Cabinet," on Thursday. The vote follows a letter demanding the resignation of Economics Minister Ainars SHLESERS of the New Party. It is possible that the New Party will withdraw from the Cabinet. New Party and Latvia's Way are holding consultations today and Wednesday. Ingirida UDRE said, "There will be more clarity on our future moves on Wednesday, after consultations with the Prime Minister." Latvia's Way and the nationalist Fatherland and Freedom, the alliance's second largest party, said the Cabinet could remain stable without the New Party. However, replacing the New Party with the Social Democrats, who are not formal members of the coalition, would mean a gain of six parliamentary seats for the coalition. This would strengthen KRISHTOPANS and give the new alliance majority status, with 52 seats in parliament.

South Caucasus & Central Asia

Arco Abandons Azeri Onshore Venture

· Atlantic Richfield Co. (Arco) on Friday abandoned its stake in a small onshore oil and natural gas development venture in Azerbaijan. Arco's withdraw has left its tiny Canadian partner, A&B Geoscience Corp., scrambling for financial backing. The move is tied to Arco's impending acquisition by BP Amoco. According to Gerald TUSKEY, corporate secretary and director at A&B Geoscience, "Arco said they were sympathetic to our cause," but that "it's not going to be part of the BP Amoco plan." The Dow Jones Newswire reports that Arco agreed to transfer its 40 percent stake in the Southwest Gobustan development project to A&B Geoscience, which through its Commonwealth unit already had a 40 percent interest in the venture. The remaining 20 percent interest in the venture is held by Azeri State Oil Company, Socar. A&B Geoscience is seeking potential investors, including oil companies, and is willing to sell off as much as 50 percent of its stake in Gobustan. A&B Geoscience has already invested $10 million in the project.

When you need to know it as it happens




May 11, 1999

Intercon's Daily

Stephanopoulos Visits Armenia

· Greek President Constantinos STEPH-ANOPOULOS completed his official visit to Georgia and is continuing his Caucasus tour by stopping in Armenia. Ambassador of Armenia to Greece Arman KIRAKOSYAN said that the President will meet with Armenian President Robert KOCHARYAN and the leaders of the Armenian parliament's factions and groups of deputies. Agreements on double taxation and cooperation between the customs services of the two countries are expected to be signed. On Wednesday, the Greek President is scheduled to meet representatives of the Greek minority population in Armenia. On Thursday, a ceremony will be held in the library of the Yerevan State University opening a special Greek Hall. The Hall will contain books on history and sciences presented by the Greek side. STEPHANOPOULOS will receive the certificate of an honorary doctor of the University. The level of relations between Armenia and Greece is in line with traditional bilateral ties that date back centuries and centuries, KIRAKOSYAN said. Relations are based on the 1996 treaty of friendship and cooperation between Armenia and Greece which was followed by agreements which covered the entire spectrum of bilateral cooperation.

Kazakhstan Prepares Official Black List

· Kazakh authorities have compiled a black list of public servants who have been sacked or sentenced for corruption or other crimes. First Deputy Prosecutor General Onalsyn ZHUMABEKOV on Monday said that the names of such officials will be added to a computer databank to prevent them from receiving government positions. Special attention will be paid to those officials who have been sentenced for abuse of office, embezzlement or cover-up of commercial or criminal structures. Another section of the databank will include officials who are suspected of unjustified expenditures, various machinations and incriminating connections, but not sentenced for lack of evidence. These people will be denied government positions. The black list already includes about 3,000 people and continues to grow.

WB To Give Kazakh $16 Million Loan

· Kazakh Deputy Prime Minister and Finance Minister Uraz DZHANDOSOV said that the World Bank is prepared to give Kazakhstan a loan to improve its judicial system. DZHANDOSOV spoke at a meeting with the chairman of the House of Commons foreign affairs committee Donald ANDERSON on Monday. He noted that Kazakh government and the World Bank will sign an agreement on a $16 million loan on May 20th. He said the money will be used to strengthen the country's judiciary, train judges and purchase equipment for courts.

Kyrgyz Hosts First Int'l Trade Fair

· The international trade and industrial fair, Kyrgyzstan-99, opened in Bishkek today. It brings together enterprises and organizations from Russia, Kazakhstan, Great Britain, Germany, Finland and other countries. President of the Trade and Industrial Chamber of Kyrgyzstan Boris PERFILFYEV expressed hope that the fair will give a boost to international business ties, as well as contribute to the setting up new joint enterprises and productions in Kyrgyzstan. The fair is the first such event in Kyrgyzstan.

Tajikistan Signs Custom Union Treaty

· Tajik President Emomali RAKHMONOV today signed a decree to approve the treaty on Tajikistan joining the Customs Union. The Customs Union of the Commonwealth of Independent States (CIS) brings together Russia, Belarus, Kazakhstan, Kyrgyzstan, and Tajikistan. The decree has instructed corresponding ministries and departments, as well as the National Bank of Tajikistan to take measures for the implementation of the treaty. The Foreign Ministry was instructed to notify the CIS Integration Committee of Tajikistan's implementation of internal procedures necessary for the treaty to take effect. Commenting on the presidential decree, Zafar SAIDOV, the presidential press secretary, said that, "this will undoubtedly contribute to the further development of mutually advantageous relations among the CIS signatories of the agreement."

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

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When you need to know it as it happens