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 25, 1999

defense industry problems has not yet been appointed. STEPASHIN announced that the appointment discussion had been long and complicated, met with heavy lobbying from politicians and business leaders.

YELTSIN set three main tasks for his new government: to pay off pension compensation to, "army pensioners and pensioners of the law enforcement agencies;" to pay "allowances to families with children;" and to work on problems in the North Caucasus and assign the government to prepare for meetings with Chechen President Aslan MASKHADOV.

Economy

Ruble = 24.67/$1.00 (NY rate)

Ruble = 24.55/$1.00 (CB rate)

Ruble = 26.02/1 euro (CB rate)

Gas And Crude Oil Revenues, Export Figures

· In January-March 1999, Russia supplied 58.6 billion cubic meters of natural gas to the world market earning revenues of $3.17 billion. According to the Russian State Customs Committee's and the State Committee for Statistics, this is 3.5 percent less than in the corresponding period of 1998 quantitatively and 27 percent less in terms of value. Experts point out that January-March 1999 period saw the ongoing decline in the average contract price of gas, as compared with that in 1998, from $71.30 per 1,000 cubic meters of gas in 1998 down to $54.10 in the current year.

Russian Federation

Politics

Yeltsin Appoints More Ministers

· After meeting in Sochi with Prime Minister Sergei STEPASHIN, Presidential Chief of Staff Alexander VOLOSHIN, and First Deputy Prime Minister Nikolai AKSYONENKO over the government structure and Cabinet appointments, President Boris YELTSIN ended the debate on who would direct the nation's economic and financial policies and outlined three tasks for the new government. There was widespread speculation that Russian State Duma Budget Committee head Alexander ZHUKOV would be given the first deputy prime minister post in charge of economy. However, it was decided he would be more efficient in shaping policy in the Duma. YELTSIN promoted liberal market reformer Mikhail ZADORNOV to the post of first deputy prime minister for the economy. He appointed Russia's chief foreign debt negotiator and deputy finance minister Mikhail KASYANOV as Finance Minister. Valentina MATVIYENKO was appointed deputy premier responsible for social affairs. Vladimir SCHERBAK, the first deputy minister of agriculture and food, becomes deputy premier for agriculture. Mikhail FRADKOV was appointed minister of trade. Leonid DRACHEVSKY, former deputy foreign minister responsible for affairs of the Commonwealth of Independent States (CIS), becomes minister for affairs of the CIS. Boris PASTUKHOV who held this post will be dealing with problems of the CIS as presidential envoy. There has been a merger of the ministries for regional policy and nationalities policy, and the ministerial post went to Vyacheslav MIKHAILOV. Ramazan ABDULATIPOV, former minister of nationalities, will be a minister in the cabinet under the guidance of the premier on most acute problems of the nationalities policy. The Minister in charge of the

Today's News Highlights

Russia

Auto Production Rises

Vodka Production Rises

European Republics

Armen-Belarus Military Agmt.

Ukraine To Cut Exports To Rus.

South Caucasus & Central Asia

Terrorist Plot Outlined

EBRD Focuses On Central Asia

Indian FM In Turkmenistan

Tajik-Uzbek Tunnel

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Natural gas, as of the results of the January-March 1999 period, accounted for 20.7 percent of Russia's entire export, as against 23.9 percent in 1998. Crude oil exports in January-March totaled 33.425 tons, up four percent from the same period in 1998. Crude export revenues reached $2.052 billion, or 27.7 percent less than in the first three months of 1998. Oil exports in March have reached 12 million tons, worth of $789 million. The average contract price of Russia's oil decreased in January-March by $27 per ton, from $88.50 in 1998 to $61.50 in January-March of 1999. Russia exported 27.867 tons of oil, worth $1.8 billion, to Western markets, which is 1.2 percent more compared to 1998, but export proceeds dwindled 23.1 percent. Russia's oil exports to Commonwealth of Independent States increased 20.6 percent, to 5.558 million tons, or $234 million.

Gas Station Tax To Raise $170 Million

· Acting deputy finance minister Mikhail MOTORIN on Friday said the gas station tax which the government has submitted to the Russian State Duma will earn the federal budget 4.2 billion rubles ($170 million) in 1999. The new tax in expected to he levied together with the one on imputed income, becoming effective this year. MOTORIN said it remains to be seen how profitable it will be. According to the draft legislation the amount of the tax will depend on stations' location but could range between that 1,500 to 12,000 rubles ($61 to $495) per pump.

Business

Russian Auto Production Rises

· Russia's auto industry boosted production from January to April, 1999, by 0.1 percent compared with the same period last year. According to the State Statistics Committee, production in April was 4.2 percent higher than March, but a 1.9 slump against March 1998. A total of 106,000 cars and trucks were assembled in April, but the average daily production fell by 3.2 percent against April, 1998. Tatarstan registered an 85.7 percent production rise from January to April, 1999, compared with the same period in 1998, the Moscow region 31.3 percent, the Ulyanovsk region 7.9 percent, and the Nizhni Novgorod region 3.7 percent. Meanwhile, output fell in Moscow by 12.9 percent and in the Samara region by 6.8 percent.

Ford Cars To Be Produced in Russia

· A joint project between Russia and the US to make Ford cars for Western Europe in the Leningrad region has been approved by the State Construction Committee and other federal authorities. However, the government has yet to issue a corresponding resolution giving it the green light. Vadim GUSTOV, who represents the interests of his Leningrad region in the Federation Council, hopes the document will be signed within days. He said Ford Motors has already okayed the project which is based on a new ideology—for the first time a major Western automobile concern will launch the production of new models for European countries in Russia with 50 percent of all components to be made locally. The project sets the production at up to 150,000 cars a year, which will secure enterprises in St. Petersburg and the Leningrad region orders worth $900 million. The plant will operate as a free warehouse offering considerable customs benefits.

Meanwhile, Volvo Truck Corp. plans to start the production of FH-12 Volvo trucks at Moscow's ZIL automobile plant. In 1998, Volvo sold 442 trucks in Russia, including 272 cars with the transportation capacity exceeding 16 metric tons. In 1999, Volvo has set the same target.

Tuesday Tid-Bit

Russia's Staying Numb: Vodka Production Rises

· Deputy Taxes and Duties Minister Viktor BERESTOVOY said Friday that the production of legally-made vodka in Russia grew 1.7 times to 11 million deciliters in the first quarter of 1999. Russia is planning to produce 132 million deciliters of vodka this year, against 96 million deciliters in 1998. This April, the federal budget received 2.4 times more revenues from the excise tax than in April 1998, BERESTOVOY said. He stressed that the excise tax is collected at the satisfactory level, but that more should be done to improve its collection. Revenues from the excise tax fell 10 percent in April in comparison with March, he said. The Ministry of Taxes and Duties is discussing the increase of the excise tax on alcohol beverages, BERESTOVOY said. Some experts propose a 20 percent increase. The Ministry, however, believes that the increase must not exceed 10 percent.

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European Republics

Belarus-Armenia Sign Military Cooperation

· Belarus Defense Minister Colonel-General Alexander CHUMAKOV and his Armenian counterpart Vazgen SARKISYAN signed in Yerevan on Wednesday an intergovernmental agreement on military and military-technological cooperation between Belarus and Armenia. CHUMAKOV particularly stressed that the agreement was concluded not between two military establishments, but between the governments of two countries. This lays a solid legal foundation for military and military-technological cooperation, the General said. SARKISYAN said that Armenian officers had been receiving training at the Belarus Military Academy for several past years. CHUMAKOV highly assessed Armenia's contribution to military cooperation among the Commonwealth of Independent States (CIS) countries.

Ukraine To Slash Exports To Russia

· The Ukrainian Foreign Economic Relations and Trade Ministry has predicted that Ukraine's exports to Russia fall by one-quarter, or $2.15 billion, in 1999. Chief of the causes leading to the slump is that Ukrainian goods are not competitive. Russia's pricing policy is keeping the production cost of its own goods low. Ukrainian exports to other members of the Commonwealth of Independent States (CIS) witnessed a 22.4 percent reduction against the first quarter of 1998. Exports to Russia fell by 18.9 percent. Ukraine exported $2.9 billion-worth of goods into Russia in 1998 and $432 billion-worth of them in the first three months of 1999.

South Caucasus & Central Asia

Georgia's Prosecutor Explains Terrorist Plot

· Georgian prosecutor general Dzhamlet BABILASHVILI provided further details on the plot by opponents of President Eduard SHEVARDNADZE to assassinate him and take control of the country, which was discovered and stopped by Interior and Security Ministries and Georgia's Intelligence Department. BABILASHVILI said, "The plotters planned to seize the presidential residence, parliament, television, to annul leaders of the law enforcement bodies, and to finally seize power." Intercon sources report that assassination plans were made for five individuals, including the President by entering his

own personal residence through underground tunnels. Also named as targets were Parliamentary Chairman Zurab ZHVANIA and Defense Minister David TEVZADZE. The terrorist group planned demonstrations in Tbilisi which would be organized and staged by current and former Communists. Rebellious tank units would move into the city in response. In addition, plans were made for an emergency committee to be formed to restore order and in turn invite Russian military forces to enter into Georgia to maintain order. A total of 12 people have been arrested, including top leaders and politicians and "weapons which the Georgian secret services don't have at their disposal were confiscated," he added. State Security Minister Vakhtang KUTATELADZE identified the former commander of Georgia's land forces General Major Gudzhar KURASHIVILI as one arrested. His role was to secure the support of the military. KURASHIVILI formerly served in the Soviet army in Angola and Ethiopia. He also had traveled to Moscow a number of times for meetings with high level Russian government officials. What is emerging now are clear and indisputable linkages with high level Russian officials. Interior Minister Kakha TARGAMADZE said several lawmakers were involved in the plot as well as prominent politicians. BABILASHVILI named former Security Minister Igor GIORGADZE as the mastermind behind the plot and said several of his subordinates were among those arrested. GIORGADZE, who is wanted by the Georgian police for the 1995 assassination attempt on SHEVARDNADZE and who has been repeatedly requested for deportation from Russia, denied accusations by Georgian officials that he was behind "terrorist" acts. SHEVARDNADZE disagreed. He said the leaders of the plot were still hiding out in Russia and will probably plan more attacks, as parliamentary elections near in November. BABILASHVILI also indicated that the group planning the coup d'etat were heavily financed from abroad. As details continue to emerge, the results will be quite shocking.

Sestanovich Makes Caucasus Tour

· US secretary of state for the new independent states, Stephen SESTANOVICH toured the South Caucasus region meeting with Armenian President Robert KOCHARYAN, top Azeri Ministers, and Georgian President Eduard SHEVARDNADZE. SESTANOVICH on Saturday led talks on a package

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of problems relating to regional security, settlement of the Nagorno-Karabakh conflict, and cooperation in energy. The US supports further negotiations on the settlement of the Azeri-Armenian conflict over Nagorno-Karabakh in two formats: within the framework of the OSCE Minsk Group and direct contacts between the sides. The negotiations are a continuation of the talks begun in April in Washington among the presidents of the three Caucasian states with the mediation of the US administration. KOCHARYAN said at the meeting, "Armenia will only greet any step for the strengthening of mutual trust in the region." SESTANOVICH also met Armenian Prime Minister Armen DARBINYAN. The US diplomat stressed the importance of the project of a transport corridor from Europe to Asia, called TRASECA, which he said was helpful for regional cooperation and security. As for international assistance to Armenia, SESTANOVICH said the US was ready to help it in transport, water supply, energy and customs fields. Armenia's joining the World Trade Organization was discussed. The American delegation also met with Prime Minister Artur RASIZADE, Foreign Minister Tofik ZULFUGAROV and Defense Minister Safar ABIYEV. In Tbilisi, SHEVARDNADZE said in an interview on national radio on Monday that, "Georgian-American relations are on the rise, they have reached a sufficiently high level...we are glad and proud that the establishment and ruling circles of the US see Georgia as a worthy and reliable partner, who is firmly going the road of democratic development."

EBRD To Concentrate On Central Asia

· The European Bank for Reconstruction and Development (EBRD) has said that Central Asia must become one of priorities in EBRD's work. EBRD President Horst KEHLER said that the bank's main projects have been concentrated in Central and Eastern Europe, as well as in Russia. The South Caucasus and Central Asia have so far remained on the periphery of its interests and the bank is planning to make up for that. Late in April, a Kazakh delegation participated in the annual meeting of EBRD. KEHLER is expected to meet with Kazakh President Nursultan

NAZARBAYEV in early June in Astana. During that visit, he will address a session of the Council of foreign investors under the Kazakh president, as well as at the international investment summit in Almaty, on June 3rd to 4th. "If the visit has positive results, of which I have no doubts, many projects which we call potential, will be implemented," Anvar SIDENOV, Kazakh Investment Agency Chairman.

Indian Foreign Minister In Turkmenistan

· Broadening of Turkmenistan-Indian ties was in the focus of attention at a meeting between Turkmenistan President Saparmurat NIYAZOV and visiting Indian Foreign Minister Jaswant SINGH on Thursday. NIYAZOV and SINGH discussed political and economic cooperation between the two countries. The Turkmenistan President spoke in favor of expanding trade relations with India, as well as cooperation between Turkmenistan and Indian companies and the development of small business. They also touched upon export and import opportunities of the two countries, especially in the possibility of pumping Turkmen gas to India. During his stay in Turkmenistan, the Indian foreign minister visited the Ajanta Pharm joint Turkmenistan-Indian pharmaceutical factory and a horse-breeding farm. SINGH, who is also Minister of the Electronic Industry, is touring Uzbekistan, Turkmenistan and Russia.

Tajik-Uzbek Tunnel Construction Resumed

· Tajik President Emomali RAKHMONOV on Saturday ordered the Finance Ministry to allocate one billion rubles from a special reserve fund for the construction of a tunnel on a strategic highway linking Tajikistan with Uzbekistan. The construction of the five-kilometer tunnel frozen in the 1980s was resumed several days ago on orders from the President. "Its construction, which should be completed within three years, will make it possible not only to use the motorway all the year round, but also ensure the country's economic independence," presidential spokesman Zafar SAIDOV said. Now, traffic makes a hundred kilometers detour for half of the year when the road is blocked because of bad weather.

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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