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

Thursday, June 17, 1999

Russian Federation

Politics

Duma Reject Gas Tax Law

· The Russian State Duma today in a vote of 219 to 101 with six abstentions rejected the draft law for increasing taxes on gas stations. The revenue-enhancing law was introduced by the government to meet the International Monetary Fund's (IMF) terms for a new $4.5 billion loan. It would be disbursed over 18 months and be used to repay the IMF. The gas tax law was debated in a version that was hammered out by a tripartite conciliation commission representing the Duma, the Federation Council, and the government. Most of negative votes were cast by the Communist faction, Communist-allied Popular Rule and Agrarian factions, and by the liberal Yabloko faction. Our Home is Russia, Liberal Democratic and Russia's Regions factions voted for the law. The Communist Party opposed the tax law saying it would increase inflation and called on the government to place controls on gas prices and nationalize important oil refineries. Communist deputy Sergei SHTOGRIN said, "This law hurts the interests of 18 million car-owners. We do not have the right to carry out such an experiment." Time is running out ahead of the Duma's summer recession for another vote and this rejection raises the stakes in the relations between the government and the Duma. Tax Minister Alexander POCHINOK said the bill is crucial for IMF lending and Russia's reputation. He said, "We've put the financial plan for June, July, and August under threat." He earlier said that if the deputies failed to pass the IMF package, "will raise a question of confidence in the state itself." Russian President Boris YELTSIN instructed his representative to the Duma Alexander KOTENKOV to maintain good relations with the Duma. KOTENKOV said, "Wherever a compromise is possible, it must be achieved, mutually-acceptable solutions must be found. Con

frontation is impermissible." Prime Minister Sergei STEPASHIN has threatened to call a vote of no-confidence in his government if the Duma rejected the gas tax law. This may force YELTSIN to sack his prime minister or dissolve the Duma, ahead of parliamentary elections in December.

Nemtsov-Stepashin Review Anti-Corruption

· Leader of the Right Course movement, Boris NEMTSOV, today presented his proposals to combat corruption in the higher echelons of power, at a meeting with Russian Prime Minister Sergei STEPASHIN. NEMTSOV said they discussed the anti-corruption struggle and relations between executive bodies and large Russian businesses. He declined to elaborate on the proposals, but noted that STEPASHIN took an interest in his ideas and will consider them further. They also discussed the revival of the housing program for the military. Approximately 210,000 discharged officers and their families need apartments. According to NEMTSOV, STEPASHIN promised to consider this acute problem at a Cabinet meeting.

Nun-Lugar Program Extends For Seven Years

· The US and Russia on Wednesday signed an agreement to extend the NUNN-LUGAR Cooperative Treaty Reduction program for another seven years. Senator Richard LUGAR of Indiana said, "I believe we have an opportunity to reduce the threat of from Soviet weapons of mass destruction...no great power has ever possessed the opportunity to work with a former

Today's News Highlights

Russia

Stabilization Committee Formed

Boeing Appoints Titov

Siemens Opens Center

European Republics

Ukraine Lifts Pre-Payment Ban

Latvia Fails To Elect A President

South Caucasus & Central Asia

Socar Uninformed On Pipeline

Kazakh Customs Miss Target

Kyrgyz For Tight Econ. Policy

Politics-Economics-Business

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Thursday

June 17, 1999

Intercon's Daily

adversary in removing the threat that confronts them." The NUNN-LUGAR program, started seven years ago, has spent about $400 million a year ($2.7 billion totally) to dismantle nuclear weapons in the former Soviet Union. The program has deactivated 4,838 nuclear warheads, destroyed 365 ballistic missiles, 343 ballistic missile launchers, 49 bombers, 136 submarine missile launchers, and 30 submarine launched ballistic missals. LUGAR explained, "To put this in perspective, NUNN-LUGAR has dismantled more nuclear weaponry than the countries of Great Britain, France, and China currently possess in their stockpiles and arsenals combined. All of this work has been done at a cost of less than one-third of one percent of the annual US defense budget." The program also dismantled the nuclear arms in Ukraine, Kazakhstan and Belarus making them nuclear-free.

Economy

Ruble = 24.23/$1.00 (NY rate)

Ruble = 24.23/$1.00 (CB rate)

Ruble = 24.98/1 euro (CB rate)

CB Considers Revoking Uneximbank's License

· Central Bank chairman Viktor GERASHCHENKO said the license of Uneximbank may be revoked at any moment. On Wednesday, he said that Uneximbank is now engaged in negotiations with foreign creditors and if they reach an agreement on the restructuring of its debts, its license may not be revoked. He said there are several other major banks which may loses their licenses soon. GERASHCHENKO pointed out that the Central Bank has already revoked the license of Menatep and taken over controlling interest in SBS-Agro. The fate of Promstroibank and Rossiisky Kredit are being decided by the Agency for the Restructuring of Credit Organizations. In addition, "the question of two more major banks is now being considered."

G-8 To Discuss Russian Economy

· Leaders of the seven richest economic powers and Russia will discuss the economic situation in Russia as a special issue when they gather in Cologne, Germany on Friday. Russian Prime Minister Sergei STEPASHIN will participate and address the summit. President Boris YELTSIN will attend the summit's conclusion on Sunday. He is scheduled to meet with German Chancellor Gerhard

SCHROEDER and US President Bill CLINTON. SCHROEDER said, "we will certainly talk about short-term economic measures in Russia...We are ready to help Russia if it is ready to help itself." G-8 leaders will also discuss social aspects of globalization and the education problem and are expected to pass a Charter on Goals and Objectives of Lifelong Education.

Gov't Forms Oil Stabilization Committee

· The Russian government has formed a special committee to stabilize the oil market and build civilized relations in this sector of the economy. Government spokesman Alexander MIKHAILOV on Wednesday said that the staff will seek, "prevent speculations on this market." He believes that the new body will prove effective in dealing with questions of access to export pipelines and oil pricing policies because its is headed by First Deputy Prime Minister Nikolai AKSYONENKO. Other committee members include deputy head is Interior Minister Vladimir RUSHAILO, Anti-monopoly Policy Minister Ilya YUZHANOV, and Fuel and Energy Minister Viktor KALYUZHNY. Prime Minister Sergei STEPASHIN signed a decree to this effect. Executive authorities of the regions were requested to set up similar centers to verify the observance of anti-monopoly legislation, take the necessary measures to supply consumers with oil and oil products and check unjustified price rises on these products.

Business

Boeing Appoints Titov To Space Department

· US aerospace company, Boeing Corporation, has appointed Russian cosmonaut Vladimir TITOV to head its Space Department and conduct relations with Russia and the Commonwealth of Independent States (CIS). According to the company's press release, TITOV will be responsible for the optimization and coordination of Boeing's resources in this region and will back all the space efforts. These functions include the coordination of the new business projects in Russia, their technical corroboration, and business contacts with the government organizations of the regions. The Boeing Corporation declares its dedication to our friends and business partners in this region. Jim ALBAUGH, president of Boeing Space and Communications, said, "We are glad that Vladimir TITOV, with his vast experience, will represent our interests in that re

When you need to know it as it happens

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Thursday

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gion. In addition to new business projects, he will be working in close contact also with our team on the International Space Station and with our Russian and Ukrainian partners in the Sea Launch Program." TITOV joined the astronaut detachment in 1976 and made his first space flight in April 1983. He commanded several expeditions on board the Soyuz, served as a mission specialists on two Space Shuttle missions, and lived for extended period on the Mir space station.

Siemens Opens Center In St. Petersburg

· Speaker of the Federation Council Yegor STROYEV attended the opening of the Center of software of Siemens telecommunications systems in St. Petersburg on Wednesday. The Siemens company is one of the sponsors of the third International Economic Forum. STROYEV said, "The Siemens Company came to Russia earlier than all others when we were not yet building up market relations." The company unites in its software products all plants manufacturing communication equipment. The speaker praised Siemens' investments in production with its own money not credits, which differs it from other companies. He noted that the Siemens Company, "comes to us not under guarantees with the government, but guarantees of local administrations and guarantees of regions." According to STROYEV, "we must take with ourselves into the XXI century the equipment manufactured by this Center." He noted that in Russia, "many factories have stopped which worked in the field of electronics. This Center will help resume operations of many plants in which billions of rubles were invested."

Russians Ready For Drive-In Movies

· Russia's first drive-in movie theater, the Cinedrome, opens at Krylatskoye near the cycling track facility in Moscow tonight. Such drive-in movie theaters first appeared in the US in the 1960s and immediately became greatly popular with motorists. The Cinedrome auditorium is designed for 110 cars. A 18-meter-wide screen guarantees image quality while high-quality sound is transmitted straight into the cars. There is a bar and a restaurant. The prices of the drive-in ticket, which can be bought right on the spot or booked by telephone include the cost of a food-and-drink package. The cinema is to show the newest national and foreign-made films.

European Republics

Ukraine Lifts ban On Pre-payment

· Ukraine's Central Bank today said that effective July 1st, importers will be able to buy foreign currency for their purchases before actual delivery. This lifts a ban on pre-payments. Central Bank spokesman Dmytro RIKBERG revealed the effective date, but little other details. Last September, the Central Bank outlawed pre-payments on imports along with other measures to insulate the gryvnia against the economic and financial crises in Russia. According to official figures reported by Reuters, imports fell to $43.8 billion in the first four months of 1999 from $4.9 billion over the same period in 1998. It added that the Ukrainian Central Bank has been acting under pressure from the International Monetary Fund to liberalize the foreign currency market and re-introduce non-bourse interbank trading. RIKBERG did not state when other currency controls may be lifted.

Regus Opens Business Center In Riga

· Regus, international provider of serviced offices opened a business center in Riga. Press relations director Richard HAZELL did not announce plans to branch out to Lithuanian or Estonia. He said, "We are geared by client demand, There are mostly international firms eyeing markets to the East, both keen to take new risks currently after the crisis in Russia." The Regus group, 17.5 percent owned by a consortium led by Bankers Trust and the rest by founder Mark DIXION, rents out office space complete with desks, telephones, and secretaries to international businesses. Manager of Regus Latvia Ilga PURINA said, "The Regus business center will offer 13000 square meters of office space, with 46 separate offices in the Valdemara Center, the new office center of [Swedish based] Skanska and Riga city." Regus plans to increase its 260 centers in 50 countries to beyond 300 by the end of this year.

No New Latvian President Chosen

· The Latvian Parliament failed to chose a president in an election today, as all five candidates fell short of the required majority earning only 24 votes in the first two rounds of voting. At least 51 votes in the 100-seat parliament are required for victory. The winner will replace President Guntis ULMANIS, whose second four-year term ends on July 7th. The Latvian president is mostly a ceremonial head, not involved

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When you need to know it as it happens

Politics-Economics-Business

Thursday

June 17, 1999

Intercon's Daily

in the day-to-day running of the country, but helps to form the government and can refuse to confirm new legislation. Head of the parliament's vote-counting committee Romualds RAZUKS reported that New Party's Raimonds PAULS and Vaira PAEGLE of the People's Party each received 24 votes, Transport Minister Anatoly GORBUNOVS of Latvia's Way party received 21 votes, Fatherland and Freedom's Janis PRIEDKALNS earned 17 votes, and Social Democrat Arnis KALNINSH finished last with 14 votes. The multi-stage election system accounts for up to six rounds of voting by the legislature. After every round, the candidate who receives the smallest number of votes will be dropped from the voting list. KALNINSH has been eliminated from the running as the weakest candidate after the first two rounds. All candidates have a pro-European Union and pro-NATO stance. PAULS, once the most popular Soviet song writer, and GORBUNOV, the former ideology secretary in the Communist Party Central Committee who led Latvia's independence drive from Moscow, are the front-runners. PAULS obviously lacks experience of a political leader, while GORBUNOV's record does not satisfy a majority of parliamentarians. Many fear Latvia would have a hard time selling itself as a market-oriented pro-western nation with a former Communist Party secretary as president.

South Caucasus & Central Asia

Azeri Uninformed On Pipeline Shutdown

· President of the Azerbaijan State Oil Company (Socar) Natik ALIYEV stated that Azerbaijan has received no notice from Russia about the termination of oil pumping through Baku-Novorossiisk oil pipeline. Russian Fuel and Energy Minister Viktor KALYUZHNY said that Russia could suspend the oil transportation through this pipeline because of the situation in the North Caucasus, referring to the Chechnya leg of the pipeline running to Russia's Black Sea port of Novorossiisk. ALIYEV cited an inter-governmental agreement of 1996 under which Russia's oil company Transneft is to transport up to five million tons of Azeri oil to Novorossiisk annually

by 2002. However, Transneft president Dmitry SAVELYEV had said in a statement that Russia could use an alternative railway route through Daghestan. ALIYEV said that this appeared to be "of no benefit for Azerbaijan...If Russia accepts keeping in place the tariff set by the transit agreement, $15.67 a ton, this could prove a mutually acceptable solution. If, however, the railway transportation is more expensive, Azerbaijan will not accept this variant." The 1,411 kilometer oil pipeline Baku-Novorossiisk was launched in October, 1997. This year, the pipeline has been working with constant stoppages and remaining idle for a total of 69 days, including ten days so far this month.

Kazakh Custom Revenues Miss Target

· Kazakh Customs Committee chairman Maratkaly NUKENOV on Saturday said that Kazakhstan's custom revenues in the first five months of 1999 failed to reach their target goal. Collections during that period totaled 11.6 billion tenge ($89,000), approximately 70 percent of the target. He noted that over 90 percent of the May target had been met compared with 51 percent of January's target. NUKENOV said that the collection rate is improving and that inflows will be higher in the second half of 1999. He also said that the committee is taking measures to combat corruption. Foreign companies have complained that the customs and tax inspectors are barriers to doing business in Kazakhstan. NUKENOV pointed out that a new customs law, with greater transparency and customs benefits for foreign companies, is being considered by parliament.

Kyrgyz Pledges To Tighten Its Economic Policy

· The Kyrgyzstan Prime Minister Amangeldy MURALIYEV said, "It is absolutely necessary to adopt a strict monetary and financial policy and minimize inflation. We must balance the budget, stabilize the som currency." In 1998, due to the Russian financial crisis, Kyrgyzstan's inflation rose to 18.4 percent from 14.8 percent in 1997. In the first five months of this year, inflation rose further to 21.8 percent. Its total foreign debt stands at $1.5 billion.

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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