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

Friday, June 25, 1999

eration with the international police organization. The sides discussed a memorandum on understanding between Interpol and the council of the Commonwealth of Independent State (CIS) Interior Ministers, due to be signed shortly, as well as Russia's cooperation with that organization and the possibility of the Russian Interior Minister's visit to Interpol. KENDALL and RUSHAILO also reviewed the new project, Millennium, aimed against west-European organized criminal groups. The two also discussed threats from the so-called Russian mafia and reviewed the ministry's efforts to combat organized crime activities. Not reportedly discussed was the refusal of Russia to deport Igor GIORGADZE, the former Georgian Security Minister, who is wanted by Georgia in connection with the assassination attempt of Georgian President Eduard SHEVARDNADZE in 1995. There is an Interpol warrant [A641/121995] issued September 26, 1995 for his arrest. He has also been linked to the most recent coup and assassination plan which was broken up by arrests in Tbilisi May 21st by Georgian Interior and Security Ministries. GIORGADZE continues his propaganda war against the SHEVARDNADZE government, including his latest campaign to run in the fall parliamentary elections for the United Communist Party of Georgia. His supporters claim that Igor GIORGADZE is already gearing up for presidential elections in 2000, but most agree that this continues to be part of Russia's great game in the Caucasus.

Contract Killing Gang Arrested In Moscow

· Russian police have arrested a group of contract

Russian Federation

Politics

Duma Passes Tax Laws Ahead Of IMF Visit

· The Russian State Duma today passed several tax laws vital to winning new loans form the International Monetary Fund (IMF), which is expected to send a mission to Moscow next week. Tax Minister Alexander POCHINOK said the passing of laws will be a good basis for the talks. Passed in the third and final reading, the laws will help restructure the banking system and require a new tax on luxury cars. However, a new excise on alcohol was quietly dropped and a tax on gas stations was rejected by the Duma. Despite these setbacks, the government in three other ways has worked to please the IMF. It has delayed a cut in the value added tax until 2000, gradually increased tax collection and placed pressure on oil companies to pay their taxes, and pledged to end restrictions on trade in the ruble. The IMF team will also review Russia's economic program. Martin GILMAN, the IMF's main representative in Russia, said, "If my colleagues see that the program agreed with the IMF is realistic and is being realized in Russian, then soon we will be ready to raise the question of credits at the meeting of the board of directors." The IMF said it is ready to lend Russia $4.5 billion over 18 months, if Russia takes steps to boost revenues. First Deputy Prime Minister Viktor KHRISTENKO said on Wednesday that he expected a first tranche to be in the amount of $630 million. The IMF loan will be used to repay what Russia owed the Fund. The granting of the loan will ease the way for Russia to restructure Soviet-era debts with other international creditors.

Interpol Meets With Interior Ministry

· Interpol Secretary-General Raymond KENDALL met with Russian Interior Minister Vladimir RUSHAILO on Thursday in Moscow to discuss Russia's coop

Today's News Highlights

Russia

CIS Taxation Summit Opens

Yukos Shareholders Win Victory

Gazprom To Stop New Contracts

ICO-Russia Sign Memorandum

European Republics

Williams-BP Close To Deal

Ukraine To Import Russian Oil

South Caucasus & Central Asia

Abkhaz Conflict: No Progress

Armenia Announces Tender

Politics-Economics-Business

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Friday

June 25, 1999

Intercon's Daily

killers which was active in Moscow. An Interior Ministry spokesman said that the gang was led by a 40-year-old man with past convictions and its members were under 30. The gang contracted for murders, kidnapped people and stole expensive Western-made cars. The search turned up four foreign-made pistol guns, nine hand-grenades and over 200 rounds of ammunition. According to a senior Interior Ministry official Anatoly KHAIROV, a total of 567 people were murdered in contract killings in Russia over the first five months this year. The figure is more than double the 232 killed during the same period in 1998, KHAIROV said. The financial collapse of August 17, 1998 increased the frequency of contract killings, he noted. In 1992, contract killings were a rarity, with all law enforcement agencies joining the search for the culprits. "Now hundreds of them are committed. Explosives, automatic rifles, grenade launchers are used in contract killings," KHAIROV said. An increasing number of killers are being recruited from among former Interior Ministry, special services and special police personnel. Failure to pay debts is one of the chief reasons for such killings, and quite of few victims were businessmen active in the profitable fuel, energy and financial fields.

Economy

Ruble = 24.33/$1.00 (NY rate)

Ruble = 24.22/$1.00 (CB rate)

Ruble = 25.24/1 euro (CB rate)

Jan Feb Mar Apr May Jun

CIS Taxation Summit Opens

· Russian Taxation Minister Alexander POCHINOK opened the fifth session of the Council of heads of

Taxation Departments of Russia, Belarus, Kazakhstan, Tajikistan, and Kyrgyzstan in St. Petersburg today. In opening the session, he declared that Russia has a chance to implement the budget for the first time in recent years. POCHINOK, elected Chairman of the Council, pointed out that the scheduled plan for collecting taxes endorsed in April has been passed its target. According to figures quoted by POCHINOK, as of June 23rd the monthly plan for taxation revenues has been fulfilled to 80 percent, and taking into account revenues due to be collected in the remaining five days of this month, the overall tax revenues will exceed 100 percent. According to experts' estimates, the amount of tax revenues collected in June will be higher than in any of the previous months. The conference of the CIS taxation chiefs is being attended by heads of Russia's regional taxation departments.

Gov't Panel Lowers Import Duties

· Russian First Deputy Prime Minister Viktor KHRISTENKO announced that a government commission for protective measures in foreign trade and customs-and-tariff policy on Thursday decided to lower the rate of import duties on, "almost 300 items" of process equipment and components, from 30 to 20 percent. The commission decided to streamline the procedure for a settlement of the customs rates of import duties within the framework of the Customs Union of Commonwealth of Independent States. It also decided to lower import customs duties on individual types of engines for civil aircraft, mainly those for small planes. A similar decision was also endorsed with regard to wool. This will concern those commodities which are not produced in Russia and, "will make it possible to step up production in these branches of the real sector of the economy," KHRISTENKO said. He pointed out that the commission decided to raise export customs duties on valuable woods, such as oak, beech, and ash-tree, while lowering export duties on processed wood species. KHRISTENKO said export duties on petroleum are to be considered at the commission's meeting in two weeks.

Fed. Council Overrides Veto On Bank Laws

· The Federation Council today overrode the presidential veto on a federal law which requires Russia's credit banks to establish correspondent relations with foreign banks registered in foreign off-

When you need to know it as it happens

Politics-Economics-Business

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June 25, 1999

Intercon's Daily

shore zones in a procedure laid down by the Central Bank. The Russian State Duma passed the law in April and the Federation Council approved it in May. On Tuesday, the Duma overrode the presidential veto. President Boris YELTSIN said in his summary that the law did not solve the problem of capital drain abroad and was bound to complicate the procedure of banks' establishing correspondent relations with foreign banks. He said that rather than regulate the correspondent relations with foreign banks, the federal law should create a legislative possibility of differentiation of banks that can and cannot have correspondent relations. The Federation Council said in debate of the law that its present edition will allow the Central Bank as a supervisor of credit banks to more effectively control the capital drain.

Business

Yukos Minority Shareholders Win Victory

· Six impartial international courts have decided to block share issuances forced on Yukos subsidiaries, controlled by oil baron Mikhail KHODORKOVSKY. In March, KHODORKOVSKY barred minority shareholders from shareholder meetings at Tomskneft, Samaraneftegaz, and Yuganskneftegas and pushed through massive share issues that would dilute minority investors' holdings. The international courts' ruling stops the share issuance, but analysts point out that the subsidiaries are still selling their oil to Yukos at below world market prices. The Wall Street Journal reports that the minority shareholders, led by US investor Kenneth DART, argued in court that Yukos was trying to take control of the subsidiary companies by transferring their assets to six offshore companies controlled by management. The six international jurisdictions which ruled favorably are the Island of Niue, the Marshall Islands, the British Virgin Islands, the Isle of Man, Dublin and Cyprus. A spokesman for DART, Michael HUNTER, said, "We believe the share issuances are no more than a cynical ploy to dilute minority shareholdings and transfer assets to companies controlled by Yukos." Yukos refused to comment on the rulings.

Gazprom To Suspend Long Term Contracts

· Russian gas monopoly Gazprom plans to suspend the signing of long-term contracts on the delivery of natural gas to Europe due to the significant price drop over the past year. On Tuesday, Gazprom

chairman Rem VYAKHIREV said, "I have ordered to stop negotiations on new contracts and new amounts. Why shall we give away cheap gas to someone for ten years? It costs a lot." He believes the gas prices will not be linked to the prices on oil, which is a current practice, but shall be formed regardless of prices on other fuel. "Russia, Algeria and countries of the North Sea are interested in that," VYAKHIREV said. He also stated that he hopes to remain the Gazprom boss until 2001. Asked about his future successor, VYAKHIREV said that he must be a man of "state mentality." First Deputy Chairman of the Gazprom Board Vyacheslav SHEREMET is a probable candidate, he noted.

ICO and Russian Telecom Sign Memorandum

· ICO Global Communications and the State Committee for Telecommunications of Russia has signed a Memorandum of Understanding, formalizing the intent to bring ICO global mobile communications to the Russian people. The memorandum focuses on implementing ICO's Global Mobile Personal Communications Services (GMPCS). According to the memorandum, the State Committee, "recognizes the importance of the work undertaken by ICO on the project to establish a Global System of Mobile Satellite Communications, and intends to support the most expeditious implementation of satellite communications on the territory of the Russian Federation, in accordance with procedure currently in effect." Stan CRAMTON, ICO's representative said, "The Memorandum is a significant step for the development of ICO's activities in Russia... We look forward to the continuation of our joint efforts in achieving a timely ICO Service Launch in Russia."

European Republics

Williams-BP Amoco Close To Oil Product Deal

· US energy group Williams and BP Amoco announced that they are close to a deal for the off-taking of oil products from the Lithuanian Mazheikiu Nafta, the sole refinery in the Baltic States. President of Williams International John BUMGARNER said, "We have reached a conceptual understanding that they will be one of the off-take purchasers of product...we are expecting to sign an agreement in next two weeks." Williams have held talks with several oil companies including Elf, Statoil, and Neste. Williams is in the final stages of talks with the

When you need to know it as it happens

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Lithuanian government to take a 33 percent stake for $150 million in Mazheikiu Nafta, which also includes an oil terminal and pipeline transportation system. Under the agreement expected to be singed in July, Williams will also have a two-tier option to double its stake to 66 percent in Mazheikiu over the next seven years. The signing has been delayed by changes in Lithuania's government and its need to review the agreement before giving it final approval.

Ukraine Hopes To Import Russian Oil

· A Ukrainian delegation negotiating the Russian oil exports to Ukraine has just come back from Moscow after the talks, which according to Ukraine's First Deputy Economics Minister Viktor KALNIK, had yielded good results. KALNIK said that Ukrainian oil refineries have a good chance of importing oil from Russia, after the two government reach an agreement on some details. The deputy minister expressed hope in that the channel would saturate the Ukrainian market with petroleum products. KALNIK said that by the end of the year, Ukraine was likely to have imported 3.5 million tons of oil from Russia.

South Caucasus & Central Asia

Georgia-Abkhaz Conflict: No Progress

· Georgian state minister Vazha LORDKIPANIDZE today met with Anri DZHERGENIA, personal envoy of Abkhazian leader Vladislav ARDZINBA in Tbilisi. There are no reports as to the contents of the meeting, that lasted about two hours. A regular meeting of the working group of the Coordination council on settling the Abkhazian conflict is held at the office of the UN mission to Georgia in Tbilisi. The council acts in the framework of the Geneva negotiating process. Taking part in the meeting, aside from the Georgian and Abkhazian delegations, are representatives of the UN mission to Georgia and of member-countries of Friends of the UN secretary-general for Georgia group, which includes Russia, US, Germany, Britain, France. On Thursday, Georgian Foreign Minister Irakly MENAGARISHVILI noted that the Collective peacekeeping forces of the Com

monwealth in the zone of the Georgian-Abkhazian conflict is not living up to its commitments to restrain confrontation. He said, "this peacekeeping operation neither ensures a secure return of refugees nor promotes the process of the political settlement of the conflict. It does not ensure the implementation of one of its main tasks, namely the problem of the prevention of confrontation and clashes, the graphic evidence of which are events in May 1998 in the Gali district." He also pointed out that for over a year Russian peacekeeping forces under the CIS auspices have been stationed without the appropriate official mandate. MENAGARISHVILI said that since the troops are non-fulfilling their tasks and there has been no progress in the settlement of the Georgian-Abkhaz conflict, it is, "not quite correct," to mark the fifth anniversary of the operation with celebrations. He said, "the task to analyze seriously the present situation in order to answer the question: why did these forces not manage to reach progress in the peace process and what role did the peacekeeping forces play for resolving the set tasks?"

President Eduard SHEVARDNADZE, during his European tour, said that after the peacekeeping operation in Kosovo is successfully completed, "there would be many more chances to settle the Abkhaz conflict." However, he added, "One should not expect that following the completion of the peacekeeping operation in Kosovo, NATO would immediately join in the process of settling the Abkhaz conflict."

Armenia Outlines Electricity Privation Tender

· "The government of Armenia has decided to privatize the majority shares [control package] of the four Electricity Distribution Companies through the sale of share packages in a competitive international tender." The sell off of the four joint stock companies will begin with Yerevan Distribution Company. Requirements for the bidders include having annual revenue exceeding $150 million, and must be an energy operator with no less than $100 million of annual revenues from energy operations. Interested parties should pre-qualify by August 20th.

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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