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

Thursday, June 24, 1999

KASYANOV is holding consultations with the American investor association of the Russian London Club Portfolio Managers to discuss restructuring Russia's Soviet-era debt. He said the purpose of his visit is to, "calm investors on behalf of the Russian government. Our government is taking a very positive stand, and we are going to solve the problems of our debts to the London Club in a civilized form." Chairman of Vneshekonombank, Andrei KOSTIN, said that Russia will resume payments to the London Club starting December 2nd. He explained, "After the expiration of the period of deferment of the current payments to the London Club of creditors in the amount of $578 million, overdue on June 2nd, Russia will resume payments in a certain amount...But we have a full understanding that arrears on Russia's debt proper must be met in full. In the fourth quarter, Russia and the London Club will hold a special session of negotiations on the whole amount of the non-state debt of the Russian Federation heired from the times of the USSR."

Ahead of KASYANOV's talks in New York, the price of Russia's Soviet-era debt rose by 30 percent to the highest level since the aftermath of Russia's August crisis. The rally, according to the Financial Times, was triggered by growing confidence that Russia will treat its international investors more fairly. Jerome BOOTHE, head of research at Ashmore Investment Management said, "The chances are there will be some kind of restructuring of Soviet-era debt but it will not be a repeat of what happened with GKOs." The

Russian Federation

Politics

Yeltsin-Annan Meet Over Kosovo, Iraq

· Russian President Boris YELSTIN and UN Secretary-General Kofi ANNAN met today in the Kremlin to discuss the Balkans crisis and the Iraq situation. YELTSIN emphasized the need for regular meetings with the UN Secretary General to exchange views on important international issues. ANNAN thanked YELTSIN for Russia's mediation efforts to end the Kosovo conflict. Russia has committed 3,600 peacekeepers in Kosovo; about 200 troops are already in Pristina, after occupying the airport ahead of NATO troops. Foreign Minister Igor IVANOV said that Russia's peacekeeping effort would cost about $60 million, which he said would come from the federal budget. ANNAN said Russian officials would also be included in a new civilian administration for Kosovo but did not give a figure. UN Undersecretary-General Sergio Vieira DE MELLO is the interim civil administrator. A permanent administrator and his deputies are in the process of being selected. ANNAN has said that person would be a European. The President called for an assessment of the damage caused by NATO airstrikes and said, "united forces" should target areas in the Balkan country for reconstruction. YELTSIN confirmed, "Russia's readiness to cooperate most actively with all partners" in the interest of resolving the Iraq situation, Presidential Deputy Chief of Staff Sergei PRIKHODKO said immediately after the YELTSIN-ANNAN meeting. PRIKHODKO pointed out that, "the main thing for us now is to bring about the lifting of sanctions" against Iraq. Russia has long awaited the lifting of sanctions so that Iraq can repay its huge debts to Russia.

Economy

Soviet-Era Debt Gains Popularity

· Today, Russian Finance Minister Mikhail

Today's News Highlights

Russia

Uneximbank To Lose License?

Gazprom To Issue Corp. Bonds

European Republics

Estonia Budget Delay Lifted

Ignalina Plant To Close In 2005

South Caucasus & Central Asia

Georgia To Get Netherland Grant

Aliyev Denies Health Problems

Kazakh Vote Of No Confid. Fails

AES To Manage Kazakh Plants

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June 24, 1999

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recent rise in oil prices and tax revenues has boosted prospects that Russia will be able to service its dollar-denominated obligations. One London Club banker explained Russia's strategy as, "keeping private sector investors happy because its main source of future funding will come from the international bond market not from western governments."

Ruble = 24.23/$1.00 (NY rate)

Ruble = 24.22/$1.00 (CB rate)

Ruble = 25.01/1 euro (CB rate)

Regional Interbank Conference Opens

· The fourth Northwestern Interbank Conference opened today in St. Petersburg sponsored by the Baltic Bank. The conference is expected to be attended by about 100 delegates from the Central Bank, St. Petersburg government officials, international rating, audit and consulting companies, commercial banks and industrial enterprises. Officials from the Central Bank, the Association of Commercial Banks, city administrators, currency exchange and Federal Tax Police Service will speak at the conference. Panel and roundtable discussions will address crisis-period relations between banks, their role in regional economies and prospects of the credit card market.

Uneximbank To Lose Bank License

· The Central Bank has warned that Uneximbank may be close to losing its license. Vladimir POTANIN, head of the financial and industrial group Interros, which is Uneximbank's main shareholder, stressed, "We are against any recall of Uneximbank's license, but if the Central Bank of Russia takes the step, we shall not fight it." Speaking at the Russian-British roundtable of businessmen POTANIN said, "We think that the restructuring of Uneximbank is proceeding quite successfully. Our negotiations with foreign creditors have entered an advanced phase and our dialogue with them is constructive enough. The rescinding of the license in such conditions, if it comes, will complicate the entire process. To my mind, it is an absolutely unnecessary step. It can only complicate the position of the creditors and lead to the loss of the possibility for the Russian state in the face of the Central Bank to control the process."

Business

Luzhkov Vs. Media Tycoons, Kremlin

· The brewing feud between Moscow Mayor Yuri

LUZHKOV and media tycoons with the support of the Kremlin is becoming more public. In a speech to the first World Congress of the Russian Press on Monday, LUZHKOV accused the country's so-called oligarchs of carving up media outlets into spheres of influence. He said that oligarchic capital, "wants to have its own press and influence it through financial methods." LUZHKOV also called the pressure of state authorities and large financial groups on mass media unacceptable and expressed concern about the decreasing number of Russian-language publications in the CIS, particularly Ukraine. The Mayor also stated that the Kremlin has launched a campaign against him.

Meanwhile, Versiya reported in last week's issue that the presidential administration is trying to organize a "future presidential party" composed of All Russia, Voice of Russia, and other parties that are capable of becoming a major rival of LUZHKOV's Fatherland Party in upcoming presidential elections. According to the publication, "total information support" will be provided by nationwide television channels such as Russian Public Television, Russian Television, and TV-6. The Kremlin also is reportedly considering canceling the licenses of pro-LUZHKOV outlets such as NTV and Moscow's TV-Center networks, RFE\RL Newsline reported.

Gazprom To Issue Corporate Bonds

· Russian gas monopoly Gazprom announced on Wednesday that it plans to launch ruble-denominated corporate bonds which will be indexed to compensate for any fall in the value of the ruble against the dollar. Revenues from the issuance will be used to finance the construction of an overland gas pipeline to the Black Sea. Issues will be offered from July 2nd to July 6th with the maturity set on April 15, 2003. The bond issue is planned for a value of 3 billion rubles, aimed at attracting Russian individual investors as well as domestic and foreign financial institutions, the Financial Times reported. Sergei DUBININ, chairman of the executive board of Gazprom responsible for finance, pointed out that the gas company has already raised $10 billion in credits over the past five years. He added that the bond issues was designed to capture a developing interest in the Russian bond market and would be offered as a medium-term instrument for domestic institutions with substantial surplus liquidity.

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Russian-British Businessmen Meet

· Prominent British and Russian businessmen are holding the third round table conference at the headquarters of the Confederation of British Industry (CBI) in London today. The business forum was initiated by Russian President Boris YELTSIN last year. He participated in the first such conference during the G-8 meeting in Birmingham. Anatoly CHUBAIS, Vladimir GUSINSKY, Vladimir POTANIN, Andrei KOSTIN, Vagit ALEKPEROV and other noted Russian businessmen are expected to attend the one-day conference. Top bankers and officials from industrial groups will participate from the British side. The forum, according to CBI representative Roger DAVIDSON, will foremost consider the economic and political situation in Russia and investment opportunities in the Russian economy.

the closure of the plant could cost between 13 billion and 15 billion litas. He added, since Lithuania is the world most nuclear dependent country, it will need more help beyond financing. He said, "Lithuania will not be able to decommission the plant with only its own resources as we will need both international financial and technical support."

South Caucasus & Central Asia

Georgia-Netherlands Sign Cooperation Agmt.

· Georgian President Eduard SHEVARDNADZE and Dutch Prime Minister Wim KOK on Wednesday discussed bilateral relations, cooperation between Georgia and the European Union and prospects for the Netherlands' more active involvement in investing joint projects. The two leaders signed an agreement on technical and financial cooperation between Georgia and the Netherlands. SHEVARDNADZE and KOK expressed satisfaction with the development of contacts in various fields and stressed the need to raise them at higher level. SHEVARDNADZE said that the Netherlands will always serve a model for Georgia in political, economic and social cooperation. Finance Minister David ONOPRISHVILI, accompanying the President, announced that the government of the Netherlands has allocated to Georgia for 1999 a grant worth 16 million guldens. He said the first part of the grant, 8 million guldens, will be transferred directly to the Georgian state budget within the next ten days. The Dutch prime minister, who represents Georgia in the International Monetary Fund (IMF) and the World Bank, noted the importance of the agreements signed between the European Union (EU), Georgia, Armenia and Azerbaijan. The Georgian President said that the Georgian agreement with the EU marks the beginning of a new era for the South Caucasus. Azerbaijan's Prime Minister Artur RASIZADE said implementation of EU-sponsored projects to develop a regional transportation system and promote the exploitation of Caspian hydrocarbons will increase the importance of the south Caucasus in the 21st century. SHEVARDNADZE conferred with Queen Beatrix of the Netherlands and held talks with Finance Minister Gerrit ZALM and Minister for Cooperation and Development Eveline HERFENS. In the afternoon, the Georgian President visited the largest port in the world, Rotterdam, where the two sides signed a memorandum on cooperation between Rotterdam

European Republics

Delay Of Estonian Budget Lifted

· The Estonian parliamentary opposition appears to have abandoned its delay tactics against the government-sponsored negative supplemental budget. When the second reading of the 1 billion kroon ($67 million) budget continued on Monday, the opposition chose to walk out of the chamber rather than call 10-minute recesses after each of the more than 500 amendments they introduced, RFE\RL Newsline reported. The ruling coalition managed to wipe the amendments off the agenda during the afternoon and passed the budget in the second reading. Coalition parliamentarians called on the opposition to discuss possible amendments to the bill, stating that some had merits but the process should be constructive, as reported by Postimees.

Ignalina Nuclear Plant To Begin Closure In 2005

· Lithuanian Deputy Economics Minister Viktoras VALENTUKEVICHIUS said that a working group investigating the closure of the Ignalina Nuclear Power Plant determined that the closing of the plant could start in 2005, but may take up to 20 years to be decommissioned. Plans for the decommissioning will soon be presented to the government and parliament. Ignalina, which operated two RBMK reactors similar to the one that caused the 1986 Chernobyl disaster, is seen as the main obstacle blocking Lithuania from joining the fast track talks for European Union membership. VALENTUKEVICHIUS said

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and the Georgian port of Poti. Also signed was a memorandum on cooperation between the Netherlands and Georgian defense ministries.

Aliyev's Bad Health Rumors Dispelled

· During meetings with Richard MORNINGSTAR, the US presidential representative for the development of the Caspian region and his successor US Ambassador John WOLF, Azeri President Geidar ALIYEV denied rumors of his deteriorating health. The Azeri President responded to recent publications in the opposition press alleging that he is in critical condition. ALIYEV described these publications as "false and immoral" and said he is healthy and ready to work with even more vigor. "The caravan of power in Azerbaijan is successfully moving forward," he said. It has been reported that ALIYEV intends to present his country's vision for the resolution of Caspian Sea border dispute between Azerbaijan and Turkmenistan. Discussions at the meeting with MORNINGSTAR and WOLF focused on the construction of the Baku-Ceyhan pipeline and the trans-Caspian gas pipeline between Turkmenistan and Georgia via Azerbaijan. Natik ALIYEV, president of Azerbaijan's state oil company Socar, said that Turkey is demanding that the estimated cost of the former project be revised upwards by $300 million from the present $2.4 billion.

Kazakh Vote Of No Confidence Fails

· In a secret ballot today, Kazakhstan's parliament failed to pass a no-confidence vote in the government of Prime Minister Nurlan BALGIMBAYEV, after lawmakers had refused to adopt amendments aimed at cutting the budget. Under the constitution, a two-thirds majority is needed to pass a no-confidence vote in the government. If the motion had been approved, President Nursultan NAZARBAYEV would have had to order the government to resign or dissolve the parliament. With the vote's failure, the budget amendments are adopted automatically. The amendments call for a reduction of revenue by 11.5 billion tenge (about $87.8 million) to 278.4 billion tenge (about $2.1 billion) and a cut of 18 billion tenge

(about $137.4 million) in expenditure to 338.8 billion tenge (about $2.6 billion). On Monday, speaker of the lower house of parliament Marat OSPANOV argued that the government should not cut social programs, especially prior to parliamentary elections this fall. Instead, he claimed the government should collect taxes more effectively.

AES To Manage Two Kazakh RECs

· Arlington-based power company AES Corporation announced that it has assumed management control of two regional electric distribution companies (RECs) in Kazakhstan. Under the agreement reached with the government of Kazakhstan, AES will also acquire long-term transmission access to Russia at a discounted tariff for the output of the Ekibastuz generating plant and tax relief arrangements. The two distribution companies, Eastern Kazakhstan REC and Semipalatensk REC, are located in northeastern Kazakhstan and serve approximately 1.8 million. The total transmission network of the two RECs covers an area approximately the size of France, according to an AES press release. The steps announced today significantly consolidate AES' existing businesses in Kazakhstan, which include the 4000 mega watt Ekibastuz (GRES-1) power plant, two hydroelectric stations, and 4 combined heating and power stations. AES has an interest in 104 power facilities. Garry LEVESLEY, Managing Director of AES Silk Road, stated, "We are delighted to have direct access to electric customers in Kazakhstan. We have learned a lot about the electric generating and heat distribution business in Kazakhstan over the last three years and are pleased that we can now relate our electric generating businesses to our new distribution business." Dennis BAKKE, President and Chief Executive Officer, commented, "This expansion of our business in Kazakhstan is another significant step for AES in the former Soviet Union. Our businesses in Kazakhstan and more recently in the Republic of Georgia have been both challenging and rewarding for AES people. We believe we are making a difference in these communities which we serve."

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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