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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, May 20, 1999

Russian Federation


Stepashin Works To Form A New Government

· Newly approved Russian Prime Minister Sergei STEPASHIN is working to form a new government

He and President Boris YELTSIN have agreed that STEPASHIN will present possible Cabinet ministers and the President will give them his approval. Foreign Minister Igor IVANOV, Emergencies Minister Sergei SHOIGU, and Justice Minister Pavel KRASHENINNIKOV will be re-appointed. A number of senior Interior Ministry officials are being considered to replace STEPASHIN's post, including Vladimir STASHKO, Vladimir KOLESNIKOV, Vladimir VASILEV, and Vladimir RUSHAILO. Former Minister for International Economic Relations and current President of Alfa Bank Petr AVEN is likely to be appointed Russia's envoy to international financial institutions such as the International Monetary Fund. It has also been predicted that deputy prime ministers for Industry and Communications Vladimir BULGAK, for Social issues Valentina MATVIYENKO, Finance Minister Mikhail ZADORNOV, and Tax Minister Georgy BOOS will remain in the government. First Deputy Prime Minister in charge of the Economy Yuri MASLYUKOV and Deputy Prime Minister for Agriculture Gennady KULIK are expected to be dismissed from the Cabinet.

Centrist head of the Duma's Budget Committee Alexander ZHUKOV has refused to join the new government in the position of deputy prime minister. However, he set out a list of terms, that if implemented he would then reconsider. He said that it is necessary to have a "team of like-minded people...which can agree on a program and bring the country out of crisis." He added, "I set out my views [to STEPASHIN] and it seems to me that the government structure should have two first deputy prime

ministers, one which would look after industrial policy and the other, financial-economic issues." ZHUKOV said he would accept a position as first deputy prime minister in charge of financial-economic issues. ZHUKOV has been proposed to counter-balance First Deputy Prime Minister and former Railways Minister Nikolai AKSYENENKO, a known "BEREZOVSKY man." Oligarchs from SBS-Agro, LogoVAZ, and United Energy Systems (UES) have been trying to influence Cabinet make-up. However, UES chairman and former deputy prime minister Anatoly CHUBAIS said he would not join STEPASHIN's new government. Correction: According to a State Duma press release, 301 deputies, not 293, voted in favor of STEPASHIN with only 55 voting against.

Skuratov Case Continues Despite Court Ruling

· Russian Duma speaker Gennady SELEZNYOV said he is against any delays in the consideration of Prosecutor General Yuri SKURATOV's case. He said that delays are inadmissible because "the country has been basically living without a prosecutor general." He noted that Russia's has had bad luck with prosecutor generals in the last few years. SELEZNYOV stressed that a prosecutor general should be an "honest and clean man of principle." But added if "the facts recorded on the video tape which compromise Yuri SKUR-ATOV are proven, this will be absolute arbitrariness beyond any comment."

The Moscow city court on Monday ruled that an order instituting criminal proceed

Today's News Highlights


Gov't Reviews Economy

Yukos Seeks Foreign Investor

European Republics

Belarus Shadow Election Results

William Advises Against Russia

Ukraine To Restructure $155M

South Caucasus & Central Asia

Georgia To Sell-Off 11 Stations

CIS Defense Mins. Meet

Kyrgyz-China Praise Relations




May 20, 1999

Intercon's Daily

ings against Prosecutor General Yuri SKURATOV was wrongful. The order was issued by Moscow deputy prosecutor Vyacheslav ROSINKIN on April 2nd. It imputed SKURATOV with elements of crime that falls under part 1 of Article 285 of the Russian Criminal Code. The court ruling says the order was issued in violation of the law and without sufficient grounds. Under the law, criminal proceedings against SKURATOV could have been instituted only by Moscow city prosecutor Sergei GERASIMOV. "Vaycheslav ROSINKIN did not have such powers. Therefore, he exceeded his jurisdiction," the ruling says. The court also considered two Federal Security Service (FSB) statements concerning the probe into the authenticity of video tapes depicting a person resembling the prosecutor general. In its ruling, the court said that the statements, written on orders from FSB director Vladimir PUTIN, were made in violation of legislation, including Article 42 of the law "On the Prosecutor General's Office of the Russian Federation." The Chief Military Prosecutor's Office is contesting the ruling. The preliminary investigation into the SKURATOV case is continuing.

Meanwhile, Federation Council chairman, Yegor STROYEV, said that the power of the prosecution should be stronger. "The Federation Council is gradually moving to accept the assumption that prosecutors' power should be strengthened because the lengthy conflict is not to the advantage of the prosecutor's office itself." The office of the public prosecutor "is losing the respect of the people and of the arms of government, and prosecutors themselves are calling for order to be restored as soon as possible," he said.


Ruble = 24.75/$1.00 (NY rate)

Ruble = 24.7/$1.00 (CB rate)

Ruble = 26.36/1 euro (CB rate)

Gov't Reviews Economic Situation

· Russian Prime Minister Sergei STEPASHIN chaired a government meeting today to review and assess Russia's economic and financial situation. Reports were presented by acting Economics Minister Andrei SHAPOVALYANTS, acting Finance Minister Mikhail ZADORNOV and Central Bank Chairman Viktor GERASHCHENKO. SHA-POVALYANTS said that the population's real in

comes will not return to its pre-crisis level until the year 2000. Russians' real incomes in September 1998, had dropped 30 percent from the previous year. He noted that there is a "weak trend toward their [income] restoration." Lower incomes can have a negative impact on the development of the national economy since a decrease in purchasing capacity affects production volume in the long run, he said. In the first quarter of this year, retail trade turnover fell 16 percent compared with the same period last year, the first such decrease registered in the past six years. However, he said, the situation has gradually begun to return to normal in recent months and the incomes of the population are beginning to grow little by little. They have already gone up by six percent. According to SHAPOVALYANTS, a three-billion-ruble state credit will be granted to the metallurgical and chemical industries this year, which will make it possible for them to improve the competitive ability of their produce and to bring down the negative impact of the production processes on the natural environment. SHAPOVALYANTS said that a number of measures were planned to be taken for protecting the interests of Russian steel-makers on the world market.

Zadornov Reports On Finances

· Russian Minister of Finance Mikhail ZADORNOV told a government meeting today that Russia's Federal budget revenue in April this year accounted for 12.2 percent of gross domestic product, which was 1.5 percent more than that in the corresponding period of 1998. He noted that the Central Bank will issue no new money in May, adding, "We shall do our best so that the Central Bank shall not have to issue money in June either and we are hoping that we shall succeed." He said, "The Russian Finance Ministry does expect being dependent on Russia's Central Bank when servicing Russia's share of the foreign debt inherited from the former Soviet Union, which was estimated at $203 million." ZADORNOV pointed out that, "Eurobond rescheduling is out of the question: we strictly fulfill our obligations on payments on this kind of securities like on other securities to be paid off as Russia's foreign debt."

White Sugar To Receive New Import Duties

· The Russian State Customs Committee will introduce import duties on white sugar at an amount of 30 percent but no less than 0.12 euro per kilo, for

When you need to know it as it happens




May 20, 1999

Intercon's Daily

a period from October 19, 1999, through April 18, 2000. This is in line with instructions from the Committee Chairman Nikolai BORDYUZHA on April 30th.


Transneft On Its Tariff Policy

· Transneft President Dmitry SAVELYEV on Tuesday said the transit company is ready for an open tariff policy. He regret, "the failure to reach understanding with the Baltic countries" on the tariffs. SAVELYEV pointed out that Russian oil companies "will be able to save $4 per ton of the exported oil against the oil exports via Venspils" in 2.5 years when the Baltic pipeline system, including the port in Primorsk, is operational. He also described a pipeline project which avoids Ukraine. He responded to questions on the constant shutdown of the Baku-Grozny-Novorossiisk pipeline due to the delay of payments between Russia and Chechnya. He said, "Now that we have agreed on a simpler procedure for settlements between Transneft and Chechen-transneft bypassing ministries and departments, the problems will be solved."

Yukos Seeks Foreign Partner

· Russian giant Yukos Oil Company said it is still seeking a foreign partner to develop the huge Priobskoye oil field in Siberia. BP Amoco pulled out of the project in March, because of low oil prices, reductions in the company's capital expenses, and the difficulty of investing in Russia. Yukos Chairman Mikhail KHODORKOVSKY, speaking at a conference in New York City on investment opportunities in Russia, said that the Russian parliament by late June will add Priobskoye to the list of fields authorized for development under Russia's production sharing agreement law, which makes the project more attractive to foreigners by guaranteeing investment rights. He said that another $500 million is needed to fully develop the field. Priobskoye has 6.6 billion barrels of recoverable oil. KHODORKOVSKY said the field could generate $2 billion in annual revenue with yearly oil production at a maximum of 145.6 million barrels. Yukos accounts for 15 percent of the country's crude oil exports.

day announced the final results of the Belarus opposition presidential elections on May 6th to 16th. Head of the commission Viktar HANCHAR said slightly more than 4 million voters, or 53 percent of the total electorate cast ballots. However, the commission ruled the vote invalid due to "irregularities" during the vote, citing the "hostility" of the authorities, the absence of conditions for free election campaigning, and the "violation of the election law" by presidential candidate Zyanon PAZNYAK. He withdrew from the election, claiming that the commission falsified turnout figures. The commission is planning another election within three months. According to unofficial data, PAZNYAK won the poll with 2.37 million votes, while Mikhail CHYHIR gained 1.62 million, the RFE\RL Newsline reported. Levon BARSHCHEUSKY, acting chairman of the Belarusian Popular Front has requested an investigation of the Central Electoral Commission's activities.

Williams Advises Against Russian Participation

· US energy company Williams today is advising Lithuanian oil concern Mazheikiu Nafta that Russian participation as an equity partner could damage prospects for future financing. Williams is in the final stages of sealing a deal for up to 66 percent stake in majority state-owned Mazheikiu Nafta. In a statement Williams said, "With the severe downturn in the Russian economy, Western financial institutions have repeatedly indicated...that the involvement of Russian companies in the ownership of Mazheikiu Nafta at this time would be a significant hindrance to financing." It adds that after the financial system stabilizes in Russia, this may be a better time for Russia to invest in the oil refinery. Russian oil company LUKoil has said that it would guarantee crude supply if given an equity stake and a hand in the operation. Mazheikiu was forced into a costly shut-down for three weeks in February due to a cut-off of Russian supply. The refinery said that it may close again this week, unless deliveries are resumed. Mazheikiu needs an estimated $500 million to complete its upgrade to Western standards.

Ukraine Requests Restructuring of $155M

· Ukraine's government has called for a voluntary restructuring of $155 million in notes. The dual currency notes were sold to international investors through ING Barings less than a year ago. The return to investors was to be linked to either the dollar or the

European Republics

Belarus Shadow Election Invalid?

· The Central Electoral Commission on Wednes

When you need to know it as it happens




May 20, 1999

Intercon's Daily

gryvnia, although notes were issued in dollars. The notes mature on June 9th, but the finance ministry has requested that it repay only 20 percent of the bonds in cash, with the remainder being exchanged for a new issue of three-year bonds. The bonds were initially issued to repay a debt to Nomura, the Japanese bank. Previous request by the Ukrainian government for voluntary rescheduling have been met by investors, understanding the difficulties faced by the government in the wake of the Russian crisis. However, a failure of the government to pay on the ING Barings' bond could lead to a cross-default on other forms of sovereign debts.

South Caucasus & Central Asia

Georgia To Sell-Off 11 Power Stations

· Georgian deputy state property minister Merab GABUNIA announced, "The ministry is ready to sell off or to give up management control for 25 years in 11 major hydro and power stations." He said interested bidders should send investment proposals to Merrill Lynch, Georgia's privatization consultant, as well as the government's privatization commission, by August 20, 1999. He explained, "After consideration of these proposals, a special commission will make a decision whether to sell these stations or to give them up with management control. Winners will be announced before September 20th." The hand over of management control will entail the passing of 75 percent shares in the stations to private hands for periods up to 25 years. Reuters reports that Georgia has sold off more than 12,000 small and medium sized firms since 1993, and last year it began privatizing the power sector under a Merrill Lynch plan. This plan envisages privatizing the entire Georgian distribution network and merging distribution companies into three large independent companies. Georgia in 1998 sold 75 percent of power distribution company Telasi to US company AES for $25.5 million.

CIS Defense Council Mtg. Opens In Yerevan

· A meeting of the Council comprising the defense

ministers from the Commonwealth of Independent States (CIS) opened today in Yerevan with the participation of defense ministers from Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Tajikistan. Ukraine is represented by its first deputy defense minister and Georgia by a deputy defense minister. According to the press service coordinating military cooperation between the CIS states, the defense ministers are planning to consider such issues as further defense integration and the implementation of the collective security treaty of May 15, 1992. The meeting will focus on streamlining the structure of working bodies within the CIS Defense Council. They will consider the situation in Yugoslavia and possible adjustment, in this connection, of military cooperation between CIS states. "We have a legal basis to talk not only about collective security, but also take appropriate measures to coordinate the plans for military security of our states," Russia's acting defense minister Igor SERGEYEV told Itar-Tass reporters. The Council held the previous meeting in Moscow on March 25th. Its participants adopted a joint declaration denouncing the NATO air strikes against Yugoslavia and discussed combat training for 1999. SERGEYEV said, "The military aspect is central to the collective security system that would reliably ensure security of our state in a unified, integrated defense expanse...It is time to stop pondering and debating and to get down to concrete actions."

Kyrgyz-China Praise Good Relations

· Chinese Foreign Minister TANG Jiaxuan, in a meeting with his Kyrgyzstan counterpart Muratbek YIMANALIYEV in Beijing today, said that China is satisfied with its relations with Kyrgyzstan in the seven years of diplomatic ties. An important aspect of China's foreign policy is developing long-term and stable friendship with neighboring countries. TANG said China is ready to further develop relations with Kyrgyzstan in the 21st century. YIMANALIYEV said his country places importance on its relations with China and he believes that bilateral ties will be developed in the next century.

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