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

Monday, June 14, 1999

Russian Federation

Politics

CIS Inter-Parliamentary Assemble To Meet

· The Commonwealth of Independent States (CIS) Inter-parliamentary Assembly (IPA) will hold a plenary sitting in St. Petersburg on Tuesday, chaired by speaker of the Russian Federation Council Yegor STROYEV. The IPA press service said that leaders of ten parliamentary delegations of IPA member states will discuss the IPA's role in the setting up of a free trade zone. The free trade zone is expected to be central on the agenda of a regular IPA plenary sitting due in October. Parliamentary leaders meet on Tuesday to review a 17-item agenda, in particular preparations for the October sitting, parliamentary influence on the fulfillment of state obligations under the CIS collective security treaty, a draft convention on border cooperation and a model civilian code for CIS members. Another item is preparations for the third St. Petersburg Economic Forum to be held at the IPA headquarters, the Tavrichesky Palace, on June 16th.

Yeltsin To Arrive For G-8 Conclusion

· Russian President Boris YELTSIN will attend only the last day of the June 18th to 20th summit of the Group of Eight (G-8) major powers in Cologne, Germany. During the conclusion of the summit, YELTSIN will hold sideline talks separately with German Chancellor Gerhardt SCHROEDER and US President Bill CLINTON. Prime Minister Sergei STEPASHIN will attend the first two days of the three-day parley in lieu of YELTSIN. This will be the first time the President has traveled abroad since attending the funeral of Jordanian King HUSSEIN in February. The G-8 member countries including Britain, Canada, France, Germany, Italy, Japan, Russia and the US, will discuss the world economic situation, financial issues, and a number of global prob

lems. Kremlin Deputy Chief of Staff Sergei PRIKHODKO on Sunday said that STEPASHIN, "will inform the leaders of the Group of Eight in detail about the economic and financial situation in Russia." Other issues on the agenda will be reviewing the results of the work completed since the last summit in Birmingham.

At the Group of Seven (G-7) financial summit, member finance ministers stated that the restructuring of Russia's foreign debt will be a key subject of consultations of that open in Frankfurt-am-Main, Germany on Saturday. Russian Finance Minister Mikhail KASYANOV will attend the meeting. The group of ministers will also discuss assistance of G-7, the International Monetary Fund and the World Bank to Russia's handling its problems. KASYANOV said he did not think that, "success has been achieved at this stage, but a painstaking work is going on in all directions and after all it is bound to result in balanced decisions on which we count."

Economy

Ruble = 24.27/$1.00 (NY rate)

Ruble = 24.40/$1.00 (CB rate)

Ruble = 25.46/1 euro (CB rate)

London Clubs Defer Russian Debt Six Months

· The London Club of Creditors on Friday decided to meet Russia's request for a six months deferment of payments toward the debt. One of the London Club bank's

Today's News Highlights

Russia

Truman Cautious On Lending

Jump Seat JV Formed

Glushkov Criminally Charged

European Republics

Baltic Defense Mins. Meet

Ukrainian Int'l Lending

South Caucasus & Central Asia

Georgian-Russian Relations

Azeri Approves Japanese PSA

WB Approves Tajik Farm Loan

Politics-Economics-Business

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June 14, 1999

Intercon's Daily

said the Russian Finance Ministry will be notified officially this week. The bank official said the committee of banks had held consultations with holders of the largest packages of Soviet-era commercial bonds. The payment by December 2nd of $578 million toward the deferred servicing of part of commercial loans of the Soviet period will not be raised and no lawsuits will be instituted. The banker also pointed out that the London Club had been working with the Paris Club and the Intentional Monetary Fund to generate a shared approach toward restructuring Russia's debts. Two plausible scenarios have been laid out, but a final decision on them will not be passed until September 2000, when Russia has its new elected parliament in place and finishes its presidential election campaign. The first option is to refuse write-offs of Russia's sovereign and Soviet-era debts, but to allow the Russian Foreign Ministry to extend redemptions on Soviet paper and on post-Soviet Russia's Eurobonds. This would exempt Russia from any current payments for three years. The second scenario is a 50 percent write-off of Russia's debt proper and of the Soviet-era commercial debt to which it is successor, about $35 billion, and allowing Russia to issue a replacement of Eurobonds starting from the year 2005.

Two Oil PSA Bills Put On Hold

· The Russian State Duma on Friday voted to postpone indefinitely debating bills applying Production Sharing Agreements (PSA) to two oil blocks, Priobskoye and Northern Territories. Chairman of the Duma industry committee Vladimir GUSEV gave no reason for his proposal to put off the debate. PSAs establish a special tax regime for investors, which must firm be approved by parliament. Foreign investors have said that PSAs are essential if Russia hopes to attract investment into the energy sector. The Northern Territories block of four oilfields has an estimated reserves of approximately 4.4 billion barrels of oil. The project is shared by oil giant LUKoil, Arkhangelskgeoldobycha (which LUKoil controls), and US Conoco. Russian partners hold 60 percent, while Conoco owns the remaining 40 percent. Priobskoye oil field has 6.6 billion barrels of recoverable oil. Yuganskneftegaz, a subsidiary of Yukos, holds the license to develop Priobskoye.

Meanwhile, on Saturday, the oil pipeline Tuimazy-Omsk-Novosibirsk was reported to have a rupture of

700 millimeters in diameter in the Russian Bashkiria section, near the border with the Chelyabinsk region. Head of the Bashkir Ministry for Emergency Situations Rustem KHAMITOV did not reveal how much oil has spilled from the pipeline, but admitted that it must have been a considerable amount. According to him, the oil is likely to contaminate the Ay River

Truman Cautions On Lending

· US Assistant Secretary of the Treasury Edwin TRUMAN, in a speech at hearings in the US House of Representatives banking committee last Wednesday on Russia's economic situation and the US policy supportive of Russian reforms, urged the US and the international financial institutions to use caution when considering whether to provide more loans to Russia. He hopes institutions will not increase Russia's foreign debt to a level where it will be unable to pay on its obligations. He said Russia's ability to service its foreign debt at the moment depended directly on its cooperation with the International Monetary Fund (IMF) which had agreed to grant it a new loan next March to settle its debt payments. He pointed out that Russia will continue to depend on IMF lending for years to come. TRUMAN said the US and the international lending institutions should try to avoid counterproductive results, such as when the burden of an excessively huge foreign debt lowers Russia's desire to go ahead with economic reforms. He also noted some progress in Russia's economic development. TRUMAN said the fact that the private sector accounted for more than 50 percent of the Russian economy is evidence of the country's movement towards a capitalist system.

Business

Airshow Yields Joint Production Of Jump Seat

· At the 43rd international aerospace show on Saturday in LeBourget France, representatives from the US and Russian Zvezda Design Bureau delegation agreed to launch a joint production of an American modification of the Russian K-36D-3.5A catapult seat. The new jump seat has a computer system connected to the jet's on-board computer, Zvezda General Director Gai SEVERIN said. It enables the pilot to adequately estimate the emergency and takes him away from the falling plane's trajectory. The seat has a broad range of catapult heights and speeds. The pilot can be ejected even from an

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aircraft turned upside down. The joint venture will be located in Connecticut to assembly the catapult seats and to equip them, but the mechanical elements of the catapult seats will be supplied by Russia. In the words of head of the Russian Armed Forces' Armament Department Colonel-General Anatoly SITNOV, the Russian Defense Ministry does not object to the use of Russian advanced technologies for rescuing the life of American military pilots. However, the final say belongs to the federal authorities, he noted. Russia, the Commonwealth of Independent States and Western countries use more than 10,000 K-36D catapult seats.

Glushkov Charged With Money Laundering

· The Russian Prosecutor General's Office on Friday indicted former deputy general director of the Aeroflot Airline company Nikolai GLUSHKOV of laundering the Aeroflot money. GLUSHKOV returned from Israel after a medical treatment and presented himself to detective Nikolai VOLKOV voluntarily to be charged with illegal business practices and money laundering. His preventive punishment is a written undertaking not to leave Moscow. The same preventive punishment is valid for Boris BEREZOVSKY and Alexander KRANSNENKER, the other two businessmen accused in the Aeroflot case. The charges state, "KRANSNENKER, BEREZOVSKY and GLUSHKOV were aware of the illegal money of the air company amassed on an account of the Andava Company under their control and used the money in their businesses to launder it with financial operations and other deals." According to the preliminary information, about $400 million passed through Andava accounts.

lege, will be the basis of an agreement which the ministers are planning to sign.

Meanwhile, Russian Foreign Minister Igor IVANOV has canceled his tour of Kaliningrad, Latvia and Lithuania planned for Saturday, but has sent his first deputy Alexander AVDEYEV in his absence. Today, AVDEYEV was received by Lithuanian President Valdas ADAMKUS. At this meeting, AVDEYEV handed to ADAMKUS a personal message from Russian President Boris YELTSIN, inviting him to visit Russia. YELTSIN wrote that he wished for the, "further development of friendly relations and cooperation between the two states." AVDEYEV said two subjects discussed at his meeting with ADAMKUS were prospects of Russian-Lithuanian relations and international matters with a focus on the Balkan situation. He said, "the sides expressed satisfaction with the current state of bilateral relations," adding that the visit of Lithuanian Prime Minister Rolandas PAKSAS to Moscow on June 29th, "will strengthen them still more, as several important trade and economic agreements will be signed." AVDEYEV will next participate in a meeting of Baltic States Council foreign ministers in Lithuania's spa city of Palanga.

Ukraine To Receive International Lending

· Ukrainian Finance Minister Igor MITYUKOV on Wednesday predicted that Ukraine will receive a tranche from the International Monetary Fund (IMF) as part of the program of extended financing in late June. He did not reveal how much money Ukraine will receive. The Minister added that he was concerned over the parliament's intention to "destroy tax legislation" by introducing too many tax breaks, which caused a sharp decline in budget revenue in May. Presidential aide Valery LITVITSKY said the IMF had decided to increase its monthly allocations to Ukraine by $50 million. In March, the IMF resumed extending loans to Ukraine according to the program which is worth $2.26 billion, and the latest $151 million installment arrived in March. Ukraine has received three tranches worth $485 million as part of a three-year program which started in September 1998.

Meanwhile, the World Bank is expected to grant two installments worth $100 million each to Ukraine to develop business activity and restructure its financial sector. Presidential spokesman Sergei KUTSY noted that Ukrainian President Leonid KUCHMA met

European Republics

Baltic, Nordic Defense Mins. Meet

· Security in the Euro-Atlantic space and regional projects are to be discussed in Riga today by the defense ministers of Baltic and Nordic countries. The meeting will be attended by Klaus Peter KLEIBER, NATO Undersecretary-General. The defense ministers are scheduled to visit the training center of Latvia's national armed forces and the Baltbat peacekeeping battalion consisting of soldiers from Latvia, Lithuania, and Estonia. Accords on the development of another project, a military col

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with World Bank vice-president Johannes LINN and World Bank director for Ukraine and Belarus, Paul SIEGELBAUME earlier on Wednesday. LINN said joint projects between Ukraine and the World Bank had achieved progress.

South Caucasus & Central Asia

Georgia Calls For Equal Relations With Russia

· Georgian President Eduard SHEVARDNADZE on Saturday received the participants from the sixth Russian-Georgian symposium organized by the International Research Center East-West (SHEVARDNADZE's Center) to discuss issues of development of the two countries' relations and the role of mass media in improving good neighborly relations. The President supported Georgian parliament's speaker Zurab ZHVANIA's statements that Russia by its many acts is ejecting itself from Georgia and called this a "self-ejection process." SHEVARDNADZE said, "we are opened for cooperation with Russian businessmen, politicians, the military." He stressed that Russia and Georgia must put their relations on neighborly and mutually beneficial footing. The Georgian President also noted that he will be meeting with Azeri President Geidar ALIYEV and Armenian President Robert KOCHARYAN in Luxembourg on June 22nd. At that time, a ceremony of final ratification of cooperation accords of Georgia, Armenia and Azerbaijan with the European Union will be held. The Georgian Foreign Ministry said Georgia's cooperation accord was an important step toward its integration in European bodies. The accord will make a basis for a future council for cooperation of Georgia with the European Union, to coordinate and control the fulfillment of the accord. An inter-parliamentary committee has been set up under the accord.

Azeri Approves Japanese Oil PSA

· Azerbaijan's parliament on Friday, in a vote of 92 to zero, overwhelmingly ratified a production-sharing agreement with a Japanese oil consortium. The accord, which will go into effect with approval of Azeri

President Geidar ALIYEV, was signed on December 25th, 1998 by the state oil company Socar for the development of the Ateshgyakh, Yanan-Tava, and Mugan-Deniz structures in the Caspian shelf. The $2.3 billion project is shared by Japex, the project operator, with 22.5 percent, Inpex with 12.5 percent, Teikoku with 7.5 percent, and Itochu with 7.5 percent. The Socar holds the remaining 50 percent share in the project. The companies formed the Japan Azerbaijan Oil Corporation (JAOC) on February 24, 1999, to carry out the project. JAOC now plans to sell half its shares to Japanese state company JNOC. JAOC president Norihiko SAWARA confirmed this saying, "After we receive notice of the effective date of the contract from Socar, we will issue new stocks and JNOC will take them and become one of the shareholders of JAOC." JAOC has plans for the first exploratory well to be drilled in 2001. If exploration is successful, the group expects to start development in 2006 with first production due in 2008. Reserves in the contract territory are estimated at 75 million to 90 million tons. The period for the contract is 25 years, but it may be extended for five years upon agreement with Socar. Natik ALIYEV, President of Socar, said Azerbaijan will receive over $100 million in bonuses during the contract.

WB Approves Farm Loan For Tajikistan

· The World Bank has approved a $20 million loan for Tajikistan's farm privatization support project. The project, funded by the International Development Association (IDA), will set up regional institutions for transfer of land to ownership of individuals or groups. Other goals of the project are the development of models for land privatization and agriculture restructuring, and the setting up of private farms to work in a market economy. The project, which is estimated to cost $23.5 million, will be funded 85 percent through the World Bank's loan. The rest is to be paid by the Tajik government and businesses. The loan is issued for 40 years, including a ten-year grace period. Since joining the World Bank in 1990, Tajikistan has received an equivalent of $162 million for eight projects funded by the IDA.

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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