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 4, 1999

Russian Federation

Politics

Russia-Germany To Cooperate On Crime

· Russia and Germany signed an agreement on cooperation between law enforcement agencies on Monday after a meeting in Moscow between Russian Interior Minister Sergei STEPASHIN and his German counterpart Otto SCHILY. The two Interior Ministers discussed the opportunity to set up joint groups to carry out operations against criminals. According to STEPASHIN, Russian and German police have carried out dozens of joint operations in the past three years, including those against car stealing and drug trafficking. He believes that the agreement will, "considerably expand the borders of our interaction." The parties have reached an accord to work out, within the next two to three months, "the schemes used by criminals to channel money out of Russia to Germany and elsewhere, including operations through offshore zones." Russian Prime Minister Yevgeny PRIMAKOV today met with SCHILY to discuss Russian-German cooperation. A meeting between the G-8 interior ministers and prosecutor generals is due to be held in Moscow in October. Russia and Germany may propose at the meeting broader interaction between Group of Eight—the seven leading industrialized nations plus Russia—law-enforcement agencies, STEPASHIN said. He announced that Russian President Boris YELTSIN will attend the summit of the Group of Eight in Cologne, Germany, on June 18th to 19th. This will be YELTSIN's first foreign visit since an eight-hour appearance in February to attend the funeral of King HUSSEIN in Amman. The 68-year-old Russian President has, over the past eight months, twice undergone hospitalization for a bleeding stomach ulcer, and has also suffered from a serious bout of pneumonia, among other ailments. Last year, YELTSIN twice pulled out of planned state visits, sending

PRIMAKOV to represent Russia at top-level summits, but lately PRIMAKOV postponed an important visit to Ukraine because of back pain.

US To Help Demilitarize A Classified Center

· After Russia ratified the Convention banning development, production, stockpiling and use of chemical weapons, the Khimprom Plant in the town of Novocheboksarsk in Chuvashia, has been opened to international observers. This plant earlier had a status of a classified enterprise which produced highly toxic chemical weapons. Director of the Khimprom Plant Vladimir KARABANOV said on Thursday that experts from the US Defense Department for lessening chemical threats, who render assistance in demilitarization of production, had visited the plant. The US experts offered assistance in dismantling the equipment in 12 departments of the plant, where chemical weapons were produced. They have not been used for 12 years. The US experts have signed a contract with Chuvashia's chemists estimated at $120,000. In June, a group of experts of the US Defense Department are expected to return to Novocheboksarsk. If the project of the demilitarization of the plant is finalized, operations will begin immediately, which will herald a new stage in mutual cooperation.

Economy

Private Savings In Banks Grow

· The total amount of rubles kept by citizens in Russian banks in the first quarter of 1999 grew by 10.2 percent from 149.5 billion rubles on Janu

Today's News Highlights

Russia

Berezovsky Free To Travel

Russia Not Working Again

European Republics

Speckhard Returns To Belarus

European Choice Conf. Opens

South Caucasus & Central Asia

Summary Of Washington Trip

Georgia For Peace With Abkhaz

Iran Rejects Azeri Oil Deals

Kazakh Extends Import Ban

Politics-Economics-Business

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Tuesday

May 4, 1999

Intercon's Daily

ary 1st to 164.7 billion rubles on April 1, according to a State Statistics Committee report released on Wednesday. The report shows that over 85 percent of all savings were kept in Russian savings bank Sberbank as of April 1st. The total amount of private savings in this bank grew from 126.8 billion rubles to 141.1 billion rubles in the first quarter. In March, ruble-denominated savings in Sberbank and other banks grew by about the same rate of 2.3 percent.

Duma Amends CB Laws

· The Russian State Duma in late last month amended Article 28 of the federal law On Banks and Banking to allow the Central Bank to determine the procedure for establishing correspondent relations between Russian and foreign lending institutions. Central Bank deputy chairman Viktor MELNIKOV told the Duma that 86 percent of Russian commercial banks' turnover comes through correspondent accounts in off-shore foreign banks, which creates conditions for mass capital export from Russia and for laundering illegal funds. He said that capital flight, "has reached a critical level." In January 1999, $800 million was taken out of the country, $950 million in February, and almost $1 billion in March.

The Duma also allowed the Central Bank to buy gold directly from producers bypassing intermediaries. This right is provided for in the draft federal law On Amendments to Article 45 of the Federal Law On the Central Bank of Russia. Until now the Central Bank had to buy gold through commercial banks and the State Depositary, or Gokhran, in order to augment its gold reserves.

Tax Revenue Predictions

· Tax revenues expected for the budget amounted to 58.9 billion rubles in 1999, including 25.5 billion rubles to the federal budget, Russian Deputy Tax Minister Sergei SHULGIN said. He noted that the Tax Ministry is working to fulfill this year's plans. Tax collections over the first quarter of 1999 increased by 33 percent more than over the same period in 1998. SHULGIN said that tax collection is rising with each passing month.

Russian tax collection in April is predicted to have increased by 20 to 30 percent compared with that of March to total 23 billion to 24 billion rubles (about $940 million), payments to the Road Construction Fund not included. Russian Tax and Fee Minister

Georgy BOOS said that the rise in tax collection compared with that of March totals 46 percent. "But I am not sure that we will retain this rate up to the end of this month," he said. In March, Russia collected 19.4 billion rubles. In May, the tax collection will dive by 20 percent compared with April because of a larger number of holidays, BOOS said.

Ruble = 24.16/$1.00 (NY rate)

Ruble = 24.23/$1.00 (CB rate)

Ruble = 26.19/1 euro (CB rate)

Business

Berezovsky Free To Travel; Leaves For France

· Russia's Prosecutor General's office has lifted an order barring oil-to-media tycoon Boris BEREZOVSKY from traveling outside of Moscow while he is under investigation. BEREZOVSKY announced that he was going to France, where he would stay until mid-May. BEREZOVSKY, who is charged with money laundering and other illegal activities, is now only required to show up for questioning if summoned by prosecutors. Prosecutors are investigation allegations that BEREZOVSKY used a Swiss company, Andava, to illegally transfer $250 million in hard currency earnings from Russia's largest airline, Aeroflot. Media reports have said that BEREZOVSKY has a stake in Aeroflot, but the influential businessman claims he has no links.

Tuesday Tid-Bit

Russia Not Working Hard Again

· Russian citizens are enjoying the Spring, by celebrating holidays in May in an extended format. International Solidarity Day on May 1st will be observed with businesses closed on May 3rd and 4th, since the holiday is over the weekend. Victory Day is observed on May 9th. However, May 2nd, 8th and 10th have also been set aside as days off. It appears that Russians will not get back to work until mid-month, if then.

European Republics

US Ambassador Returns To Belarus

· US Ambassador to Belarus Daniel SPECKHARD returned to Minsk on Monday after almost a year. SPECKHARD and other European ambassadors left Belarus after being evicted from their residences

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in the Drozdy diplomatic complex. Belarus had ordered urgent sewer repairs on the complex, which adjoins the residence of President Alexander LUKASHENKO. Later, the entire complex was turned over to the presidential property. Diplomats maintained that the Belarus government had no right to evict them from their sovereign residence. The dispute last June turned ugly, when a gate to the US Ambassador's home was sealed shut. SPECKHARD said that he returned only temporarily to discuss the dispute and to, "show that we still care very much about the people of Belarus." During his visit, SPECKHARD will meet with government officials, opposition leaders, and ordinary citizens on the political situation in Belarus.

Ukraine's European Choice Conference Opens

· An international conference on the subject Ukraine's European Choice: the Experience of the (three) Baltic States Along the Lines of Integration into the European Union opened in Kiev Monday. An official at the Ukrainian Foreign Ministry's information department said that representatives of the Foreign ministries and non-governmental organizations of Lithuania, Latvia, Estonia, Finland, Denmark, and Sweden are planning to discuss political relations between Ukraine and the European Union. They will also consider ways for Ukraine to draw on the European integration experience of the Baltic States, specifically in effecting administrative and budgetary reforms. Participants in the meeting are to devote much attention to the development of relations between Ukraine and Baltic countries.

South Caucasus & Central Asia

Shevardnadze Summarizes Washington Trip

· In his Monday national radio address, Georgian President Eduard SHEVARDNADZE expressed satisfaction with his trip to the US. He said, "We have gained even more friends who wish to further help Georgia and develop relations with us...After the visit to the United States and the meetings there, I am even more confident about the future of Georgia which enjoys liking and support in the world," SHEVARDNADZE stated. In the United States, he discussed with US President Bill CLINTON regional stability issues, the Kosovo situation and the necessity to expedite the settlement of the Georgian-Abkhazian conflict as well as holding meetings with

regional leaders and officials from the World Bank and International Monetary Fund. CLINTON confirmed "the commitment to the principles of developing friendship and partnership with Georgia." The Georgian President added, "President CLINTON believes that the same crime happened in Abkhazia as in Kosovo." SHEVARDNADZE stressed that the US President had agreed with him that "ethnic cleansing and genocide should not remain unpunished irrespective of where they take place—in Abkhazia, in Kosovo or in any other country."

Georgia For Peace Settlement With Abkhazia

· Georgian President Eduard SHEVARDNADZE called on Abkhaz leaders to implement UN Security Council, Organization for Security and Cooperation in Europe (OSCE) and CIS summits' resolutions. The resolutions foresee the return of refugees to Abkhazia, the restoration of the economic situation in the region, and the determination of Abkhazia's political status. Speaking on the national radio on Monday, SHEVARDNADZE confirmed Georgia's readiness to the peaceful settlement in Abkhazia and to the resumption of friendly relations between the two peoples. He expressed the hope that during the talks in Sukhumi and Tbilisi, Abkhazia will make sure that there is no alternative, but to reach reconciliation and accord. The President said that if no agreement is reached at the talks, it will be necessary to decide on whether the pullout of the peacekeeping forces from the zone of the Abkhazian conflict may be admitted at this stage.

BP Amoco Takes Over AIOC Operatorship

· The 11 member oil consortium Azerbaijan International Operating Company (AIOC) said in a statement on Monday it had decided to cede operatorship of the $11 billion scheme to BP Amoco. BP Amoco already holds a 34 percent stake in the consortium, set up in 1994 with the purpose of developing three offshore oilfields in the Caspian Sea. President of AIOC David WOODWARD said, "We believe that a single BP Amoco operatorship will deliver a stronger, more competitive, more resilient and successful oil industry to Azerbaijan," Reuters reported. Azerbaijan has signed 19 deals worth over $40 billion to develop Caspian energy reserves. The move had been expected as part of cost-cutting measures. BP Amoco is already an operator of four other consortia in Azerbaijan, but AIOC is the only

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one so far producing oil in the Azeri section of the Caspian Sea. Production is approximately 110,000 barrels per day. Members of AIOC are BP Amoco (34.14 percent), Unocal (10.05 percent), Exxon (8 percent), Pennzoil (4.82 percent, Turkish Petroleum (6.75 percent), Delta Hess (1.68 percent), Azeri state oil company Socar (10 percent), LUKoil (10 percent), Statoil (8.56 percent), Itochu (3.92 percent), and Ramco (2.08 percent).

Iran Lashes Out At Azeri Oil Deals

· The Iranian Foreign Ministry has stated that the oil deals signed between Azerbaijan and three American oil companies last week worth $10 billion are "devoid of legal grounds." Foreign Ministry spokesman Hamid Reza ASEFI said on Friday evening that mechanisms for exploitation of the Caspian Sea reserves is a topic of discussion among the littoral states. The Iranian spokesman said that some of the oil fields in areas specified in the contract belong to Iran. Therefore, he said any move taken in the region is a violation of the rights of the Islamic Republic of Iran, adding that oil companies have already been cautioned and given warnings on the issue. The five Caspian littoral states of Iran, Azerbaijan, Russia, Turkmenistan and Kazakhstan hold different views on the way to divide natural resources in the world's largest inland lake. Iran has urged for determining the sea's legal regime and stressed the need of joint ownership of its natural resources while some other Caspian states insisted on a division of the sea among the five countries.

Azeri-Japan Sign Cooperation Agreements

· Azeri Prime Minister Artur RASIZADE and Japanese Foreign Minister Masahiko KOMURA signed a number of important agreements as a result of their talks on Monday. KOMURA also held talks with his Azeri counterpart, Tofik ZULFUGAROV. Japan has pledged to extend assistance to refugees trying to escape fighting between Azerbaijan and Armenia in the Nagorno-Karabakh region, as well as to donate $500,000 through the UN to remove anti-personnel land mines. Japanese Foreign Ministry spokesman

Masaki OKADA said the Azeri government agreed to provide a credit 18.3 billion yen (about $160 million) worth to realize the second phase of reconstructing the Severnaya hydro-electric station on the Apsheron peninsula which was built at the beginning of 1950's. The first phase is also financed by the Japanese government, which allocated about $340 million to implement this project, OKADA said. Japan also proposed Azerbaijan to provide one billion yen to reconstruct transport communications. The Japanese diplomat stressed that during the talks, Azerbaijan shows interest in foreign financial resources to ensure the economic growth. KOMURA noted that Japan considers Azerbaijan as a key state on the Great Silk Route. During, Azeri President Geidar ALIYEV visit to Tokyo in February 1998, eight intergovernmental documents were signed, creating the legal basis for relations. Japan invested $200 million in Azerbaijan since 1992. Foreign trade turnover between the two countries amounted to $20.3 million by the results of 1998. Japan is represented on the Azeri market with cars, electric domestic appliances and computers. Five Japanese companies participate in some Azeri energy projects on the Caspian, which has an aggregate value of $15 billion.

Kazakh Extends Ban On Russian Imports

· On Wednesday, Kazakhstan announced that it was extending the temporary ban on food imports from Russia, first imposed on January 11th. The Energy, Industry and Trade Minister said, "[the government] said the ban would be removed except where there is dumping. There is dumping, and so the ban exists in accordance with the agreement with Russia until June 23rd." A ministry statement said the Russian government was effectively subsidizing food producers by allowing them to pay for electricity and transport at reduced prices. The import ban includes meat and poultry, milk, grain and flour production and confectionery goods. "The high rate of the tenge in recent month led to a sharp deficit in the balance of payments in Kazakhstan. Massive imports from neighboring states from the CIS led to serious losses for Kazakh producers."

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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