DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, June 21, 1999

Foreign Minister Igor IVANOV and US Secretary of State Madeleine ALBRIGHT. The two Presidents outlined tasks in the reduction of the nuclear threat, the assistance to Russia in the fulfillment of the International Monetary Fund (IMF) economic terms, and the implementation of the agreements on Kosovo. The two leaders agreed to resume talks for START III and to hold talks on possible changes to the Anti Ballistic Missile (ABM) treaty of 1972. Discussion over ABM came to a head after the US planned to develop it a new anti-missile national defense system. The US agreed to pursue the START III Treaty ahead of a Russian State Duma approval of the START II Treaty. YELTSIN called for the resumption of the activity of the Russian-American commission under Vice President Albert GORE and Prime Minister Sergei STEPASHIN. The Russian President also stressed the need to strengthen global security in the next century. He also called for a global surveillance system to limit the ballistic missiles. YELTSIN asked the US to forgive the Soviet-era debt, which accounts for $66 billion of the $140 billion Russia owes to creditors. CLINTON stressed again that nothing could happen until Russia has met the conditions of the IMF, which would free up further funds. According to National Security Advisor Sandy BERGER, CLINTON and YELTSIN also discussed situation in Kosovo and the role of the Russian presence in the international peace keeping force (KFOR). YELTSIN also held talks with German Chancellor Gerhard SCHROEDER on more global initiatives amid the 21st century.

Russian Federation

Politics

US-Russia Reach Kosovo Peace Arrangements

· US Secretary of Defense William COHEN announced in Helsinki on Friday that Russian troops will serve within the NATO-led peacekeeping force under a unified structure, but will remain under Russian national command and control. Russian peacekeeping troops in Kosovo will operate in sectors allocated to France, Germany and the US. In addition, a Russian representative will be present at all levels of the chain of command for KFOR. Russia will also be active in disarming "illegal groups," namely the Albanian Kosovo Liberation Army (KLA). These terms were worked out between COHEN and Russian Defense Minister Igor SERGEYEV after marathon talks in Helsinki, ending the week-long standoff between 200 Russian troops and NATO peacekeepers at the Pristina airfield. COHEN said all nations participating in the KFOR peacekeeping force will be able to use the airport once the NATO has approved the agreement. SERGEYEV said that Russia will send 3,600 troops to the Kosovo peacekeeping force. He stated his satisfaction with the new arrangement. COHEN said the agreement, "preserves the unity of [NATO] command and it gives Russia a unique role by providing for operations of Russian forces," within sectors controlled by NATO members. He added, "This agreement protects NATO's fundamental interest," including preserving a NATO chain of command.

Clinton-Yeltsin Relationship Back On Track

· Russian President Boris YELTSIN and US President Bill CLINTON met in Cologne for the 17th time, healing the strained bilateral relations over the crisis in Kosovo. The talks, following the three-day summit of world's seven industrial countries and Russia (G-8), were also attended by Russian of

Today's News Highlights

Russia

Gas Exports Fall, Oil Rise

Gazprom Considers Stake Sale

Rus-China Sign Telecom Agmt.

European Republics

Three Nations To Build AN-7X

Kazakh PM Visits Kiev

South Caucasus & Central Asia

Shevardnadze Flies To Lux.

Kazakh Pipeline Agmt. Signed

Five Nation Border Talks Begin

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Monday

June 21, 1999

Intercon's Daily

G-8 Summit Focuses On World Economy

· Attending the Group of Eight (G-8) Summit in Cologne, Germany on behalf of Russian President Boris YELTSIN, Prime Minister Sergei STEPASHIN on Saturday pledged Moscow's commitment to meet the terms of new loans by the International Monetary Fund (IMF). The IMF is prepared to disburse $4.5 billion in new credit to Russia in exchange for the implementation of tax reforms and other fiscal measures aimed at improving the deficit-ridden state revenues. The Prime Minister briefed the world leaders on Russia's economic situation and measures the government has taken since the economic crisis last August. STEPASHIN expressed Russia's desire to get integrated into international economic organizations such the World Trade Organization (WTO) and the Organization for Economic Cooperation and Development. Leaders of Britain, Canada, France, Germany, Italy, Japan and the United States gave strong backing to those efforts. Many stressed the need for global efforts to sustain support for free trade. However, these leaders stated that they would consider rescheduling or writing-off Soviet-era debt, if Russia meets the IMF obligations. The 25th annual summit set out a laundry list of new economic and political initiatives. The summit leaders called on, "all parties to the conflict in Kosovo" to respect the cease-fire and adhere to terms set out in the agreement governing the withdrawal of Serb forces and related UN Security Council resolutions.

The summit also unveiled a groundbreaking plan to reduce the debt burden on some of the poorest, most indebted nations on earth. If implemented, the Cologne Debt Initiative would offer these mostly Third World nations a chance to renegotiate their debt repayment schedule, as long as they use the resulting savings for education, public health and other social programs.

Economy

Ruble = 24.23/$1.00 (NY rate)

Ruble = 24.23/$1.00 (CB rate)

Ruble = 25.2/1 euro (CB rate)

Russian Gas Exports Fall, Oil Exports Grow

· Russian State Statistics and Customs Committees released a report with specific data showing that Russia's gas exports in the period of January-April 1999 fell by 2.2 percent as compared with the same

period in 1998, with export losses estimated at 26.4 percent. While exports of Russian gas to foreign countries have increased by 10.4 percent in January-April, 1999 as against the same period last year, totaling 46.6 billion cubic meters, this was offset by the 18.3 percent decline of Russian gas exports to the near abroad countries, totaling 26.9 billion cubic meters. During the first four months of 1999, the average negotiated price for Russian gas dropped to $53.2 per cubic meter. It was $70.7 per cubic meter during the same period in 1998. In this same period for 1999, Russian gas exports accounted for 18 percent of Russia's overall export earnings as opposed to 22 percent for the corresponding four months of 1998.

Meanwhile, the State Customs Committee report shows that oil export from Russia in January-April of 1999 grew by 6.3 percent as compared with the same period of 1998, reaching 45.9 million tons, including 38.6 million tons delivered to former European socialist countries. It is noted that export of crude oil at this period of 1999 yielded $2.1 billion which is 17 percent less than at the first quarter of 1998. The average contractual price for Russian oil in January-April of 1999 as compared with the same period of 1998 decreased by $19, from $86.9 to $67.9. The share of crude oil in the total cost of Russia's export in January-April of 1999 was 14.4 percent, against 15.5 percent at the same period of 1998.

Russia's Fuel and Energy Ministry plans to process 172 million tons to 174 million tons of oil products by the end of 1999, a considerable increase from 164 million tons in 1998. Fuel and Energy Minister Viktor KALYUZHNY said his ministry is facing "very difficult tasks." He said it is reviewing relations between the ownership of the oil-extracting and oil-processing sectors. KALYUZHNY stressed that, "there is already a package of six laws which will allow Russian regions to increase production in the oil and gas-processing industries." The Minister noted that his ministry plans to process 200 million tons to 220 million tons of oil products by 2001.

Business

Gazprom Considers Stake Sell-Off

· Chairman of Russia's gas monopoly Gazprom Rem VYAKHIREV said that company is considering selling a small portion of the government stake

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June 21, 1999

Intercon's Daily

before the end of this year. "Five percent could be sold before the winter, since 25 percent plus one share are required to ensure influence of the state," VYAKHIREV noted. He pointed out that the sale of Gazprom shares needs a calm and stable situation which would show the investors that Russia is proceeding along the right track. According to the Gazprom chief, Russia supplies 75 billion cubic meters of gas to former Soviet republics per year, but is paid in cash for a mere five billion cubic meters. This year Russia will supply gas to Ukraine in the amount which is just enough to pay for the transit of its gas to other countries, he said. Gazprom, which receives 18.7 percent of cash payments for the deliveries within the Commonwealth of Independent States (CIS), is planning to increase this indicator to 30 percent. VYAKHIREV said that Moscow City authorities have been paying in cash for all gas supplies. On the Yugoslav gas situation, the chairman emphasized that the company did not stop supplies during the NATO air strikes. Gazprom did not expect cash and Yugoslavia paid for the gas with food supplies.

Alt Ltd. Accused Of Economic Espionage

· Police in Russia's south Siberian autonomous republic of Khakassia have brought legal action against the Moscow firm of Alt Ltd., which is suspected of causing economic damage to the republic's budget. The company was an official representative of the Khakassian government in operations with the Sayano-Shushenskaya power plant, Russia's largest energy producer. According to Khakassia's deputy interior minister Vyacheslav TRUBNIKOV, Alt Ltd. was supervising the repayment of the power plant's debts to the republic's budget. The company's activities resulted in 29 million rubles of damage to the Khakassia's budget. The Interior Ministry is still investigating the company's operations. The Khakassian parliament asked the United Energy System of Russia to terminate the agreement between the Sayano-Shushenskaya power plant and Alt Ltd.

Russia-China Sign Telecom Agreement

· Two companies from Russia and China have signed an agreement to jointly launch a project to upgrade the outdated program-controlled telephone exchange system in Sverdlovskaya Oblast. The two companies, the Import and Export Co. (Group) Ltd.

of Harbin and the Ural Telecom Company of Sverdlovskaya Oblast, will invest a total of $80 million in the project. The Harbin company noted that the company had beaten several international telecommunications giants to win the deal. The company will take charge of the design of the whole project, and all telecom facilities required in the project will be supplied by Chinese manufacturers. The project will be carried out in three phases. The first phase of the project, which is expected to cost $13 million, is scheduled to be completed within three years.

European Republics

Three Nation Agree To Build AN-7X

· An agreement for the joint building of the An-7X European basic modification was signed by the Russian-Ukrainian aviation consortium, and the Aero Track consortium of Germany in LeBourget, France on Sunday. General Director of the Russian-Ukrainian consortium Leonid TERENTYEV said the An-7X is being created on a basis of the An-70 Russian-Ukrainian military cargo aircraft. The joint team is setting a target of making 300 new planes. The overall capacity of the An-7X market is estimated at 500-1,000 aircraft. The Russian-Ukrainian intergovernmental agreement on forming the consortium was signed on May 18, 1999. The consortium will be the leading state contractor in the An-70 project and will be responsible for all of its phases from tests through the batch production and the maintenance support. On May 20, 1999, the German aviation industry announced the creation of the Aero Track consortium to take part in the An-7X project. The program of the An-70 production is made for 16-18 years and the maintenance support will last for 30-40 years. The Russian-Ukrainian consortium involves the Aviapribor company, the Aerosila company, the Electroavtomatica design bureau, the Ufa engine-building plant and the Aviacor company of Russia, as well as the Antonov scientific-production center, the Aviant company, the Motor-Sich company and the Progress design bureau of Ukraine. The governments of Russia and Ukraine have 13 percent each in the consortium.

Kazakh Premier Visits Kiev

· Kazakh Prime Minister Nurlan BALGIMBAYEV arrived in Kiev today for an official visit. The Kazakh

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Prime Minister is due to hold talks with his Ukrainian counterpart Valery PUSTOVOITENKO and attend a regular session of the Kazakh-Ukrainian intergovernmental commission for trade and economic cooperation. As a result of the forthcoming talks, Kazakhstan and Ukraine are planning to sign intergovernmental agreements on customs affairs, action to combat breaches of tax legislation, and on cooperation between the Finance ministries.

Police Detain Estonians For Arms Deals

· Police have detained a group of Estonians in connection with an attempt to sell arms, ammunition and drugs in the Tver region. Law enforcement agents confiscated a Simonov pistol-machine gun with 1,190 rounds of ammunition for a TT pistol, over 540 grams of drugs and about $2,000 counterfeit dollars. The Estonians are facing charges of contraband, illegal acquisition, possession, and sale of arms, ammunition, and explosives, and illegal production, acquisition, possession and sale of drugs.

South Caucasus & Central Asia

Georgia-EU Agreement To Be Celebrated

· Georgian President Eduard SHEVARDNADZE has left Georgia today for Luxembourg to participate in the inauguration ceremony of the Georgian-European Union agreement on cooperation that will be held on June 22nd. The agreement was signed in 1996 and ratified by the European Union on May 31, 1998. During his stay in Luxembourg, SHEVARDNADZE will meet with Luxembourg Prime Minister Jean-Claude JUNCKER and the Grand Duke of Luxembourg Jean. He is also expected to meet with the Armenian president Robert KOCHARYAN, Azeri Prime Minister Artur RASIZADE, chairman of the European Commission Jacques SANTER, and chairman of the European Union Council Joschka FISCHER. Azeri President Geidar ALIYEV will not be able to attend the ceremony and subsequent meetings because his doctors have advised him to stay home, the head of the presidential foreign relations department Novruz MAMEDOV said. The Azeri Presi

dent has not appeared in public since his return to Azerbaijan after recovering from heart surgery in the US. In his stead, RASIZADE will sign a cooperation agreement between Azerbaijan and the European Union.

Kazakhs Pipeline Agreement Signed

· The Kazakh government and four foreign companies signed a memorandum on Friday to build a 460-kilometer pipeline in Kazakhstan, linking the Karachaganakskiy gas deposit in Bolshoi Chagan to Atyrau. The project will cost $440 million. The four foreign companies are the ENI operator firm, the British Gas Exploration and Production Ltd, Texaco International Petroleum Co., and LUKoil. President of Kazakhoil, the national oil company, Nurlan KAPPAROV said the new pipeline will be connected to the Caspian pipeline grid the moment it is completed in 2001. The new pipeline will enable Kazakhstan to pump up to seven million tons of gas to Atyrau and one million tons to Samara, in the Volga region. Kazakhstan will also be able to export oil through the Caspian pipeline grid to the west via the Black Sea and to the south via the Mediterranean.

Five-Nation Border Talks Begin In Beijing

· A regular round of five-nation border talks began in Beijing today between a joint delegation of Russia, Kazakhstan, Kyrgyzstan, and Tajikistan, and a Chinese delegation. Participants in the talks, which are of a confidential nature, are to discuss border-crossing matters, cross-border cooperation between countries of the so-called Shanghai Five, which already concluded a number of agreements among themselves to enhance confidence-building measures on the former Sino-Soviet border. Headway is expected on a solution between China and Tajikistan which still have a disputed border sector in the Pamirs. Russia and China will be concentrating on Tarabarov and Large Ussurian Islands at the confluence of the Amur and Ussuri rivers, and Bolshoi Island on the Argun River. The Russians stand to the effect that those territories belong to Russia remains, "principled and unchanged."

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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Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Jennifer M. Rhodes, Principal Editor

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1999, Intercon International, USA.

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