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

Tuesday, May 18, 1999

Russian Federation

Politics

Stepashin Describes Government's Outlook

· Acting prime minister Sergei STEPASHIN is beginning to outline the outlook of his new government, ahead of being approved by the Russian State Duma on Wednesday. He is holding back-to-back meetings with factions leaders and speakers of both houses of parliament to explain the foreign, economic, and political policies of the new government. He said that the Russian government has two foreign affairs priorities: peace in Yugoslavia and closer cooperation with other Commonwealth of Independent State (CIS) members. He noted that, Russia's foreign policy is determined by the President and, "there will be no serious changes in this field. We will continue to do what was mapped out earlier." If confirmed, STEPASHIN's first trip will be to Minsk to take part in a meeting of the CIS heads of government slated for June 4th. He said he is strongly against a NATO ground operation in Yugoslavia and stressed that it, "would put the negotiating process on the brink of collapse." Economically, STEPASHIN said that the next three months will be decisive. He said that economic reforms require new lending from the International Monetary Fund (IMF). He threatened the Duma that if it refuses to pass necessary legislation for the IMF lending, the Cabinet will demand that the Duma hold a vote of no-confidence in the government—a development that could lead to renewed confrontation with YELTSIN. Among the priority task to be implemented by the government, STEPASHIN mentioned a reform of the banking system and invigoration of the real sector of the economy, which must result in the flow of funds to the treasury. He said the new government will also be committed to exposing criminals threatening Russia's economic revival. He said, "We must step up our fight against crime in Russian business affairs, both in the

state and private sectors. The biggest brake on our economic development is theft...Crime and corruption reduce to nothing our most noble aspiration." He added that the failure of Russians to pay taxes, "is not only a criminal offense but a crime against the country." To shore-up political stability, the acting prime minister has said the government will work on, "leveling out the situation in Russian regions." STEPASHIN said that if he is confirmed as premier, he will work downsizing the number of state officials in local institutions making it more efficient and the Economic Council at the Russian government will be formed, where "voices of regions will be heard." STEPASHIN is said to already have a list of possible ministers for his Cabinet, but has refused to comment publicly about it.

Federation Council Aims To Curb Yeltsin's Power

· Russian Federation Council chairman Yegor STROYEV opened Monday's session by calling for curbs on President Boris YELTSIN's powers to guard against unwarranted changes in the government, which plunge the country into crisis. "Yes, the President has the right to dismiss prime ministers, but any such change amounts to a major political crisis." Today, STROYEV said the Council's goal is, "to maintain stability not only in the [legislative] house but also in the society, in the state, and in power." He added, "If this spirit of stability, balance, and tolerance moves to the society, then we shall get out of the political confrontation and economic crisis sooner." STROYEV also

Today's News Highlights

Russia

LUKoil Bond Issue Approved

Sidanko Bankruptcy Proceeding

European Republics

Herzog To Visit Baltic States

Lith. Nuclear Reactor To Close

South Caucasus & Central Asia

Bomb Explodes In Abkhazia

Kyrgyz Arrests Plutonium Trader

Turkmen Celebrates Holiday

Tajik-Uzbek On Bilateral Issues

Politics-Economics-Business

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Tuesday

May 18, 1999

Intercon's Daily

noted that the time for power-sharing could happen after the elections.

Yeltsin Undergoes Tests, Skips Meetings

· On Saturday, the same day the Russian State Duma voted on his impeachment, Russian President Boris YELTSIN had what was described as a regular medical check-up, but the weekend timing raise speculation. The President, who has a long history of health problems including several heart attacks and a bleeding ulcer, canceled a meeting with visiting Spanish Prime Minister Jose Maria AZNAR. A Spanish diplomat said that meting was canceled because the Russian leader was suffering from "heavy bronchitis." The Kremlin quickly denied these remarks. A Kremlin spokeswoman, however, refused to say that Yeltsin had no health problems at all. The Kremlin has often covered up YELTSIN's health problems calling them a mild cold. YELTSIN aides denied a meeting with AZNAR was ever scheduled, though Kremlin aides said Monday that the two leaders would meet. YAKUSHKIN said the two spoke by telephone and that AZNAR met with acting prime minister Sergei STEPASHIN instead.

Economy

Ruble = 24.86/$1.00 (NY rate)

Ruble = 24.79/$1.00 (CB rate)

Ruble = 26.52/1 euro (CB rate)

IMF Agreements With Countries Not Individuals

· International Monetary Fund (IMF) Managing Director Michel CAMDESSUS today emphasized that, "we [IMF] don't make deals with individuals but with countries." This is the primary reason why he believes that Russia will continue with the commitments made between the IMF and PRIMAKOV government. He said, "I trust that as great a country as Russia will stick to its words." The IMF and PRIMAKOV government agreed on an economic program in April, but IMF lending of $4.5 billion is contingent on the passage of legislation meant to boost revenues. Acting prime minister Sergei STEPASHIN said on Monday that the new government would implement all promises given to the IMF by the PRIMAKOV government. Deputy Finance Minister Oleg VYUGIN said, "I think it's a little bit early to say I'm absolutely confident," that the Duma will approve the IMF program. He pointed out that implementation of the program would require parliamentary action on bank

restructuring and improved tax collection. CAMDESSUS said that, "if the new government implements the prior actions which are part of our agreement, the IMF will disburse its support, according to the agreement." "We are looking forward to the speedy resolution of the present political difficulties on the agenda to put the country on the right track and have the country standing on its feet."

Gov't Changes Spurs Economic Concern

· Russian Taxes and Revenues Minister Georgy BOOS on Wednesday said that the preservation of economic stability in Russia will depend on how quick and how painful the government changes. Speaking about the impeachment procedure, he said that "Russia does not need the worsening of a political situation." In his opinion, fluctuations on the Russian market could be avoided, if the State Duma does not have to be dissolved after three negative votes on the candidacy of a new prime minister, and if continuity in the work of the government is preserved. Although he believes there are areas in which the old government failed, BOOS pointed out that some important results were achieved. These include stabilizing the economy, avoiding hyper-inflation, and improving the dollar exchange rate. He added that the payment system was restored in the country, the banking system was preserved, the ruble exchange rate was strengthened, gold and currency reserves were increased and Russian debts were reduced. He noted that the PRIMAKOV government managed for the first time to, "reduced its debts instead of borrowing more...I believe the new government, irrespective of its make-up, will follow the same course, Russia will avoid a crisis, and economic growth will be continued." BOOS did not make it clear if he would accept a possible proposal to join a new government.

BOOS pointed out that tax collection during the first four months amounted to 78.1 billion rubles, or 6.91 percent of the gross domestic product. The tax bodies of 66 Russian regions have exceeded the task on collecting payments to the federal budget in April, collection 26.4 billion rubles. Boos stressed that the most strict measures will be taken in May for the nonfulfillment of the task. The auditing department of the Ministry for Taxes and Collections will conduct checks in the territorial departments which lag behind in collecting taxes.

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Trade Turnover Predictions For 1999

· Russia's foreign trade turnover in 1999 will be about $116 billion, which is roughly the same as in 1998, acting Trade Minister Georgy GABUNIA said on Monday. He believes that Russia will manage to retain the same value of its exports at over $71.6 billion and imports at over $44 billion. GABUNIA noted that the amount of shipments within the frame of Russia's military technical cooperation with other countries will keep growing.

Business

LUKoil Bond Issue Approved

· Russia's Securities Commission on Monday approved an issue of 3 billion rubles ($118 million) worth of bonds from LUKoil, Russia's largest oil company. The issue next month will allow holders of restructured Russian treasury bills to purchase the four-year bonds, which carry a 6 percent coupon, with their ruble proceeds. The securities will be denominated in rubles, but linked in undisclosed terms to the ruble-dollar exchange rate, the Financial Times reported. The Commission is also reviewing a similar bond issue from Russian gas monopoly Gazprom worth 3 billion rubles. It is also possible that Tyumen Oil Company, Russia's fifth largest oil company, may issue a ruble-denominated bonds worth $100 million. Stephen O'SULLIVAN, director of research at United Financial Group in Moscow said, "I would like to think people with blocked rubles will believe LUKoil and Gazprom are good homes for their rubles."

Sidanko Bankruptcy Proceedings To Resume?

· A Moscow regional arbitration court is meeting today to decide the next step in the bankruptcy case against Russian oil company Sidanko, which is 10 percent owned by BP Amoco. Creditor Beta-Eko brought to the case to the court in March, but the Judge postponed the hearing until today. The Judge refused to appoint an independent external manger, even though nearly all of Sidanko's creditors had asked the court to do so. Since March, all Sidanko creditors met and agreed to ask for a postponement of the hearing until June 25th to allow more time to prepare to restructure the company. This request will be the first issue discussed at the hearing. Also since the last hearing, Sidanko has appointed, Norris STANLEY a BP Amoco employee, as the new chairman of the board and elected seven of the 11

board members. A BP Amoco spokesman told Reuters that he expected the court to defer the hearing. He said, "we have no indications that the recommendations of the creditors will be other than accepted."

European Republics

Herzog Visits Baltic States

· German President Roman Herzog left Bonn today for visits to two Baltic countries, Lithuania and Latvia. He will discuss bilateral relations, expansion of NATO and the European Union, and the situation in the Balkans with Lithuanian President Valdas ADAMKUS and Latvian President Guntis ULMANIS. No official documents are expected to be signed during the visit. It is HERZOG's last trip abroad in his five-year term, which will end in six weeks. HERZOG is expected to confirm Germany's support to their endeavor to join the European Union. The President will fly to Vilnius for talks with ADAMKUS today, and two days later he will arrive in Riga to meet with ULMANIS and other leaders. HERZOG's term will end on June 30th. His successor is to be elected next Sunday by the parliament. German Chancellor Gerhard SCHROEDER is also expected to visit Baltic states shortly.

Lith. Nuclear Plant To Temporarily Closed

· Lithuania's Soviet-built Ignalina nuclear power plant is preparing to be temporarily closed due to missing a Monday deadline for an operating license for one of its two reactors. The head of Lithuania's Nuclear Safety Inspectorate (VATESI) said the plant had failed to provide documents on the implementation of some safety regulations and was expected to take a month to complete licensing procedures. The plant's number two reactor has already been switched off for routine maintenance until July 1st. Ignalina deputy director Gennady NEGRIVODA said, "We have received the request from VATESI...and we will be shutting down the plant in the previously approved way." The plant must notify the energy supplier Lietuvos Energija, before starting the three day process to close the plant. The shutdown is not expected to affect energy supplies. Ignalina uses a pair of RBMK-type reactors of the same design that caused the 1986 disaster at Chernobyl. The nuclear power plant's safety is a concern for nearby Scandinavia and the European Union.

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Tuesday

May 18, 1999

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South Caucasus & Central Asia

Bomb Explodes Near Abkhaz Parliament

· The Abkhaz parliamentary building was damaged by a bomb explosion early on Sunday. No one was injured. Two days earlier, a political officer with the Russian peace-keeping troops deployed along the border between Abkhazia and the rest of Georgia, expressed concern at a series of violent incidents over the past week. He said this had augmented tensions in southern Abkhazia. He suggested that the violence is intended to sabotage the ongoing return of displaced persons to Abkhazia, RFE\RL Newsline reported.

Statoil Expresses Greater Interest In Azeri Oil

· Norway's Statoil has expressed that it wants to increase its involvement in Azerbaijan's oil and gas industries. "For the last three years, Statoil has been looking at the gas sector in Azerbaijan and the commercialization of the gas sector and I think we're ready to take on a leading role in the development of it, Statoil chief executive Harold NORVIK said at the opening of the company's new office in Baku. Statoil has invested $350 million in Azerbaijan as a member of two consortia. He did not specifically say which projects the company was considering, but said Statoil was looking at a modernization of some of Azerbaijan's crumbling gas infrastructure. NORVIK said he had discussed taking over operations with officials from Azeri state oil company, Socar. Statoil earlier this year expressed an interest in winning control over the giant Alov fields that BP Amoco is currently operating. Statoil, which has a 15 percent in the project, could gain more if Socar chooses to sell a portion of its 40 percent share.

Armenia Parliamentary Elections On May 30th

· According to an Armenian Central Electoral Commission official, seven hundred and eighteen candidates will contest 75 seats in Armenia's parliament elections scheduled for May 30. Armenian President Robert KOCHARYAN, in response to reporters questions, declined to predict outcome of

the elections. He described it as a "luxury" for Armenia to have 21 parties and electoral associations. In the opinion of local analysts, the Unity Alliance of the Republican and People's Parties of Armenia stand the highest chances for a win at the forthcoming elections. The parties are headed by Defense Minister Vazgen SARKISYAN and Soviet Armenia's ex-leader Karen DEMIRCHYAN.

Kyrgyz Customs Halt Plutonium Smuggler

· Officials at Bishkek Airport arrested an Uzbek citizen who had agreed to transport a canister of radioactive plutonium to the United Arab Emirates, according to Itar-Tass. The man claimed to have been given the material by a stranger who promised him $16,000 to smuggle it out of Kyrgyzstan.

Turkmen Marks Rebirth And Unity Day

· Turkmenistan today is celebrating Rebirth and Unity Day. On this day in 1992, the first Constitution of an independent and sovereign Turkmenistan was brought into effect by a law passed in the parliament of the republic. From that day forward an annual national holiday, a Day of Rebirth and Unity, was instituted by Presidential decree. Conferences and seminars are taking place in all cities and district centers to elucidate the main constitutional laws of the country, and amateur concerts and public merry-making have been arranged for the evening.

Tajik-Uzbekistan Discuss Bilateral Issues

· Tajik President Emomali RAKHMONOV received Uzbek Foreign Minister Abdulazim KOMILOV in Dushanbe on Sunday to discuss issues of mutual interest and the peace process in Tajikistan. Delegations of Uzbekistan and Tajikistan held negotiations to discuss the fulfillment of bilateral documents. The sides will sign a set of new documents. Spokesman for the Tajik president Zafar SAYEDOV said, "The republican leader assured the Uzbek minister that the peace process went on and would be brought to the logical end." KOMILOV said that Tashkent is monitoring the situation in Tajikistan and, "supports the policy conducted by the Tajik President to consolidate the peace process.

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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