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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, June 23, 1999

Russian Federation


Bomb Explodes Near Interior Ministry

· Interfax new agency reports that on Tuesday a bomb exploded near the Interior Ministry, in the latest of a series of terrorist acts in Moscow. The bomb, made with an estimated 150-200 grams of TNT, was discovered in a package in the ministry's lobby by a police officer. Reports suggest that the officers defused the bomb with some complications, causing broken glass and other damages. In April, one bomb exploded outside of the Federal Security Service's headquarters and another one in the elevator shaft of the Intourist Hotel near the offices of a firm headed by State Duma deputy and popular singer Iosif KOBZON.

Supreme Court Rules Against Skuratov

· In a move favoring President Boris YELTSIN's aim to fire the Prosecutor General, Russia's Supreme Court on Tuesday ruled that the opening of a criminal case against Yuri SKURATOV, which led to his suspension as prosecutor general, had legal grounds and that an investigation may continue. The Supreme Court considered an appeal by the Main Military Prosecutor's Office to override a Moscow court decision. The Moscow court had said that the case against Skuratov was opened illegally because it was launched by a city deputy prosecutor. SKURATOV called the latest ruling, "biased and unfair" and said he is, "not guilty of anything." The feud between SKURATOV and YELTSIN began after the Prosecutor General began investigation alleged corruption among top Kremlin officials. SKURATOV claims that the attempts to fire him were intended to block his inquiry. YELTSIN's attempts to dismiss the official have been held up by the Federation Council, which is the only body authorized to remove the prosecutor general. It has refused to do

so twice, after strong appeals by high ranking politicians. The first refusal came after the airing of a video tape, which allegedly showed SKURATOV with two prostitutes. The tape has been linked to Kremlin staff, who botched a blackmail scheme to force SKURATOV to resign.


London Club Debt Talks Resume In New York

· Russian Finance Minister Mikhail KASYANOV left today for New York to continue debt talks with the Russian London Club Portfolio Management, the association of American holders of the Soviet debt to the London Club. The association is made of private investors and funds working in the sector of Russian securities. The association holds up to 15 percent of the overall Soviet debt to the London Club which is about $30 billion. They are reluctant to grant Russia a six-month grace period. Late payments become mature on Thursday. Russia failed to pay to Club members $325.7 million of the former Soviet debt and $204.8 million of interest on June 2nd. The Ministry is having consultations with a high-ranking association executive in Moscow. The New York talks can not only boost the restructuring of the debt to the London Club, but also lay a foundation for the soonest return of Russia to the international market of private loans, ministry officials stated.

Russia To Write Off Poor Nations Debt

· Russia will write off $1.5 billion in debt owed to it by the world's poorest countries, mainly

Today's News Highlights


YelAZ Supplied With Opel Parts

Gazprom To Increase Exports

LUKoil Stakes To Be Sold?

European Republics

Baltic Gas Association Formed

Ukraine Reaches Critical Choice

South Caucasus & Central Asia

Viability Of GUUAM Is Strong

Azeri To Join Gas Export Race?

Kazkh Budget Cuts Rejected




June 23, 1999

Intercon's Daily

those in Africa, as part of an agreement on international debt relief reached during the G-8 summit in Cologne, Germany. Cash-strapped Russia is itself seeking to reduce its enormous debt burden, but Russian Finance Minister Mikhail KASYANOV says that Russia will forgive unpaid debts still on the books. The debts, which have been accumulated over decades, are mainly a result of Soviet arms sales and aid to developing countries, including former Soviet republics. Russia still hopes to receive payments from big debtors like Iraq, which owes Moscow billions of dollars for past arms purchases. Russia has been pushing for a lifting of sanctions imposed by the UN Security Council against Baghdad, and Iraq has said it is ready to repay the debts in barter by providing oil, as well as opportunities for Russian oil companies to develop new oil fields.

Ruble = 24.23/$1.00 (NY rate)

Ruble = 24.23/$1.00 (CB rate)

Ruble = 25.05/1 euro (CB rate)

Russian Economic Factors From May

· A Russian Statistics Agency report shows the total number of the unemployed in Russia estimated by the International Labor Organization (ILO) increased by 0.1 percent in May 1999 as compared with April, to reach 10.4 million people, or 14.2 percent of the country's work force. The number of officially registered unemployed dropped by 6.4 percent in May, to 1.73 million. The report also adds that in May the average minimum subsistence level in Russia was estimated at 924 rubles per person, which is 4.5 percent more than in April (884 rubles). The real incomes of the population have dropped by 6.1 percent against April and were estimated at 23.4 percent less than in the same period last year. The average income per capita of the population in May was estimated at 1,386 rubles, the Russian Statistics Agency said.

The Tax Ministry is expected to collect 26 billion rubles ($1.07 billion) in taxes in June, according to Deputy Minister Alexander SMIRNOV. He said, "Collection is going on at a normal rate and there are no deviations from the traditional dynamics." Tax authorities believe that June figures are likely to be higher than May ones, when the ministry failed to meet its target. Russia's inflation rate amounted to 0.6 percent in the first half of June, including 0.2 percent in the period from June 8th to 15th, according

to a report from the Russian Statistics Agency. The average daily price rise in June dropped to 0.039 percent as against 0.071 in May, when the monthly inflation rate amounted to 2.2 percent. In May 1999, industrial production increased by 6.1 percent against May 1998, but it was lower than April 1999, the Statistics Committee reported.


YelAZ Supplied With Opel Vektra Components

· The Yelabuga car construction plant YelAZ in Russia's Tatarstan autonomous republic today received the first 48 sets of component parts for Opel Vektra cars from General Motors plants in Germany. YelAZ General Director Ravil ZARIPOV said Opel Vektras will be produced according to the same plan that YelAZ used in its production of Chevrolet Blazer jeeps. At first, the plant will only assemble the cars using German-made components and later 70 percent of components will be produced in Tatarstan and other Russian regions. More than 160 Russian plants have already agreed to cooperate with YelAZ. The first round of cars will be equipped with two-liter engines, complete electrical package and air conditioning. Plant officials refused to specify the car's price, but in Moscow it is predicted to reach $28,900. According to YelAZ officials, the price of an Opel Vektra will be flexible, otherwise it can follow the path of Chevrolet Blazer. YelAZ had to discontinue production of the Blazer because approximately 1,000 of them remain unsold at the plant's warehouses.

Gazprom Plans To Increase Exports By 2010

· Russia's gas monopoly Gazprom plans to increase its exports by 40 billion to 45 billion cubic meters by the year 2010. According to the State Customs Committee and the Russian Statistic Agency, Russia's gas exports quantitatively remained at the previous level and made 200.6 billion cubic meters in 1998, but in terms of worth declined by 18.7 percent, to $13.3 billion. Gazprom board member Yuri GORYAINOV said the increase in gas exports by 40-45 billion cubic meters within 11 years would be possible with the launching of a network of gas pipelines Yamal-Europe and construction of Russia-Turkey pipeline. He pointed out that Gazprom accounts for about 25 percent of gas exports to the European market. Revenues on sales to Europe in 1998 reached 73.27 billion rubles, a rise of 26 billion rubles compared to 1997 figures. Western experts

When you need to know it as it happens




June 23, 1999

Intercon's Daily

predict that the proportion of gas in consumption of primary fuels will grow up to 22 percent at the start of the 21st century, with Europe's need for gas to increase to 300 billion cubic meters by 2010.

LUKoil Stake Sale Considered

· Russian deputy state property minister Sergei MOLOZHAVY today announced that the ministry is considering a sale of 9 percent of state-held stakes in LUKoil. "The Property Ministry's financial consultant on this deal, HSBC investment bank, should name the starting price for this package [of shares] soon. We hope to sell it in the third quarter," he added. Potential bidders will be required to fulfill specified investment requirements. MOLOZHAVY also noted that the government may consider sales of state shares in other oil companies such as Slavneft, Rosneft, and Onako, if the idea of a state oil company made up of these firms is not supported. "We are still seeking 15 billion rubles in income from sales of state property this year," he added.

the largest potential gas markets for new sales.

Ukraine Reaches Crucial Loan Decision

· The grace period for a Ukrainian $163 million loan payment due to ING Barings on June 9th ends today, putting Ukraine in a difficult position. Ukraine must choose between losing the confidence of international creditors and risking a catastrophic "cross default" or losing the support of the International Monetary Fund (IMF) by falling short of reserve requirements. Ukraine would dip below IMF target reserve levels, if it repays ING Barings. The IMF has also expressed to Ukraine that it does not want to have its loans used to pay off debt service to speculative investors in high-yield debts. If Ukraine violates these IMF requests, it jeopardizes a $2.2 billion three-year loan. Ukraine is offering ING Barings investors 20 percent in cash and 80 percent in new international bonds on a voluntary basis. It is unclear whether this voluntary basis will prove effective.

South Caucasus & Central Asia

Shevardnadze Express Confidence In GUUAM

· Georgian President Eduard SHEVARDNADZE said he has no doubt about the viability of the association of Georgia, Ukraine, Uzbekistan, Azerbaijan, and Moldova (GUUAM). In an interview with Asaval-Dasavali newspaper, the President said, "GUUAM is an association of states with equal rights, determined to solve problems facing them by pooled efforts and consulting each other." He mentioned that all five countries are members of the Commonwealth of Independent States (CIS). In a skeptical statement about the preservation of the CIS, SHEVARDNADZE said, "The CIS still has a chance to save itself, but that will happen only if CIS decisions are carried out and unless this organization does not turn into an instrument to preserve Russia's influence in this space."

In the same interview, SHEVARDNADZE said that "the more pressure is brought to bear on Georgia, the more will be our country's desire to join NATO." He added that the timing of Georgia's effort to join the Western alliance "fully depends on some of our neighbors who are hurrying us towards this step," clearly alluding to the invasion of Georgia's airspace by Russia and its continued meddling in Georgia's sovereign affairs.

European Republics

New Baltic Gas Association Formed

· Fourteen Baltic Sea state gas companies have formed the Baltic Gas Association with aims to integrate regional networks and reduce transportation costs. The association is led by Danish energy company Dansk Olie & Naturgass, with members including Vattenfall Naturgas and Sydgas of Sweden, Finland's Fortum Oil and Gas and Gasum, JSC Lentransgas and JSC Gas-oil from Russia, Eesti Gas in Estonia, Latvia's Latvijas Gaze, Lithuania's Lietuvos Dujos, Ruhrgas and Verbundnetz Gas of Germany, Norway's state-owned oil company Statoil, and state-owned Polish Oil and Gas. It is not ruled out that Russia's gas monopoly Gazprom may soon join the association. Statoil marketing manager Sigurd LILAND said that the group hopes to expand consumption in the Baltic rim countries by amending general business conditions and integrating supply systems, the Financial Times reported. The new association is compared to the European Gas association, but could lead toward its members forming joint ventures to build new pipelines. The Baltic Gas Association is studying the possibility of interaction between gas and electricity in the Baltic region in cooperation with Baltrel. Strategically, the association considers Denmark, Sweden, and Finland to be

When you need to know it as it happens




June 23, 1999

Intercon's Daily

Azeri Plans To Enter The Gas Export Race

· Chief of foreign investments in Azerbaijan's state oil company Socar Valekh ALESKEROV said that, "Azerbaijan intends to become a major exporter of natural gas," since the possibility of big natural gas deposits have been discovered, The Wall Street Journal reported. Azerbaijan is following the reports with cautious new confidence following the withdrawal earlier this year of a number of oil consortiums, after discovering their finds were not commercially viable. Azerbaijan's Shah Deniz offshore fields are hoping for better success. Results on the first well, to be drilled by a consortium led by BP Amoco and Norway's Statoil in a production sharing agreement, will be official announced next month. Azeri President Geidar ALIYEV said that Shah Deniz may contain 700 billion cubic meters of natural gas. Of that amount ALESKEROV is estimating that Azerbaijan might have 15 billion cubic meters of natural gas to export per year. Foreign oil executives believe that amount is feasible by 2007.

Meanwhile, Richard MORNINGSTAR, former special adviser to the US administration on energy policy in the Caspian region, who was recently appointed the representative of the United States in the Council of Europe and his replacement John WOLF are scheduled to arrive in Baku today from Istanbul. The building of the main export-oriented pipeline, to run from Baku to the port of Ceyhan on the Mediterranean coast of Turkey, and the construction of a trans-Caspian gas pipeline, to run from Turkmenistan to Turkey via Azerbaijan and Georgia, will be the main focus of their meetings in Baku. MORNINGSTAR believes an accord for a pipeline between Baku and Turkey will be reached in the coming months. The Azeri working group is pressing Turkey to sweeten the deal with a government guarantee on the cost and a turnkey guarantee. MORNINGSTAR stressed the US support for the Baku-Ceyhan pipeline. The US pipeline policy is to secure multiple routes to the West for Caspian oil and to limit the influence on Russia and Iran.

Armenian Proposal On Nagorno-Karabakh

· Spokesman for the Armenian Foreign Ministry Ara PAPYAN stated that Armenia has suggested to place a permanent mission of OSCE observers, "along the contact line of Azeri and Karabakh troops in the Karabakh conflict zone." It noted that this is, "to prevent provoking incidents and their use for political and other ends." The Ministry statement continues, "We call on Azerbaijan to show restraint and to abstain from provoking moves which create additional obstacles in negotiations and complicate the situation in the region." In the opinion of PAPYAN, "Azerbaijan is aggravating the situation on purpose." Armenia claims that Azerbaijan broke the cease-fire on June 14th. According to the statement, "Azerbaijan deliberately thwarted the truce to make use of the situation and to produce new political demands."

Kazakh Parliament Force No Confidence Vote

· Both houses of Kazakhstan's parliaments on Monday rejected budget cuts proposed by the government to take into account the April devaluation of the tenge. Prime Minister Nurlan BALGIMBAYEV responded by calling for a vote of confidence set for Thursday. Under the constitution, if two thirds of all parliament deputies vote no confidence in the Cabinet, the president must decide within ten days whether to dismiss the government or dissolve parliament. A vote of confidence would automatically pass the budget cuts, which would slice four percent off this year's spending to hold the budget deficit at 3.7 percent of gross domestic product, Reuters reported. BALGIMBAYEV denied accusations that the budget cuts were dictated by the IMF as a condition for assistance. Deputy Prime Minister Kasymzhomart TOKAYEV Tuesday said he was confident a compromise between the government and parliament will be reached, though he did not explain how. He said, "I believe it is not a crisis, political or economic. The situation is quite stable and is also a sign of democracy." Legislators, however, are in tune to the democratic process and are resisting the unpopular cuts ahead of a general election in the Fall.

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

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