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

Tuesday, July 13, 1999

entry into this international organization and set specific dates for a new round of talks. Deputy Economics Minister Ivan MATYOROV said he fears that Russia may find it more difficult to secure admission in the WTO, if it fails to join it this year. He noted that under the WTO schedule for 2000 a number of multilateral talks would be held on reconsidering current agreements. MATYOROV said that Russia can no longer stay outside the WTO, which ensures control of world trade. He believes that since the WTO rules let newly-admitted countries lower tariffs on imported goods over a certain period, Russia should take every measure to make that period as long as possible. MATYOROV said that Russia should open its market gradually, because quick admission would flood the country with imported goods and weaken some domestic producers. He said this should not happen until the Russian economy is growing and the budget stabilized.

The Russian Federation applied for joining the General Agreement on Tariffs and Trade (GATT) on June 11, 1993. On April 15, the trade ministers of the GATT member-states met in Marrakesh, Morocco to sign an agreement on the establishment of the WTO, a universal world commerce regulating mechanism, to replace the GATT. In December 1994, Russia applied for joining this new international organization. Formal talks on Russia's accession to the WTO began in 1995, nine sessions have been held since. According to leader of the Russian delegation to the talks on the country's entry into the WTO

Russian Federation

Politics

Yeltsin Vacations Close To The Kremlin

· Russian President Boris YELTSIN has decided to spend his summer vacation at the Rus residence just outside of Moscow instead of the presidential retreat of Shuiskaya Chupa, in Karelia. He has not ruled out a trip to his favorite Karelia fishing grounds, but his decision to stay close to the Kremlin has prompted speculation in the Russian media. The Kremlin on Monday dismissed rumors that YELTSIN's preference for a more central location was due to political considerations, insisting that only weather conditions were a factor in picking a holiday destination. Communists are particularly concerned by reports leaking from the President's inner circle that the YELTSIN is prepared to bury the remains of Vladimir LENIN, possibly at the end of this week to coincide with the anniversary of the shooting of the last Russian czar and his family by a Bolshevik firing squad. A move to bury LENIN could lead to violent demonstrations by left wingers. The protest would be used as a pretext for the government to ban the Communist Party. As Intercon earlier reported, Chairman of the Duma Security Committee Viktor ILYUKHIN said, "It's no secret that decrees banning the CPRF [Communist Party of the Russian Federation] have been drafted." Despite the summer recess in the Russian State Duma Communist legislators have decided to maintain a permanent presence in Moscow at the Duma and near LENIN's tomb to prevent any developments.

Russia Reviews WTO Accession Progress

· A Russian government commission is meeting today to discuss Russia's accession to the World Trade Organization (WTO). The commission chaired by First Deputy Prime Minister Viktor KHRISTENKO will determine Russia's position with regard to the

Today's News Highlights

Russia

Gazprom Raises 2.5B Rubles

Governor To Seize FESCO

European Republics

Skele Appointed Latvian Premier

South Caucasus & Central Asia

Georgia Holds WTO Talks

Azeri Gas Deposit Results

Fire Damages Almaty Airport

Uzbek-US Open Gas Depository

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July 13, 1999

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Georgy GABUNIA, Russia has submitted its initial tariff proposals and initial proposals for commitments concerning the maintenance of the level of production and subsidies of food and agricultural exports. Russia insists that the protectionist measures taken by other countries with regard to Russian goods are negatively affecting the state of the Russian national economy. GABUNIA said restrictive measures have been particularly taken with regard to Russian exports by a number of countries, such as the US, Mexico, Brazil, Turkey, India, South Korea, Hungary, Poland and European Union countries.

Economy

Ruble = 24.42/$1.00 (NY rate)

Ruble = 24.38/$1.00 (CB rate)

Ruble = 24.87/1 euro (CB rate)

IMF Board To Meet Over Russia July 28th

· The International Monetary Fund's (IMF) board of directors will meet in Washington on July 28th to review the situation in Russia. The date of the board of directors' meeting coincides with Russian Prime Minister Sergei STEPASHIN's visit to Washington. He is scheduled to meet with IMF senior executives and to see for himself that preparations for the resumption of cooperation between Moscow and IMF have been completed. Following the discussion with STEPASHIN, the IMF Board is expected to adopt a resolution granting Moscow $4.5 billion worth of credits for the coming year and a half. The loan is contingent of Russian economic reforms. The credits will be spent on the servicing of Russia's previous debts to IMF. STEPASHIN and Central Bank chairman Viktor GERASHCHENKO are poised to sign a new letter of intent to the IMF, outlining the economic policies they will adopt to win the new IMF money. GERASHCHENKO said that the aim of this document is not only to obtain an IMF credit but also the possibility to conduct talks with other financial organizations for receiving more credits and restructure Russia's foreign debt to the Paris and London Clubs. Russia has already adopted several laws to meet IMF requirements for the loan.

Business

Gazprom Raises 2.5B Rubles Through Bonds

· Russian gas monopoly Gazprom on Monday closed a corporate bond issue which raised 2.5

billion rubles ($100 million). Up to half of the bond issue was taken up by investors in the innovative three-year dollar-indexed but ruble-denominate bond issue, which was priced at 83 percent of its nominal value. The remainder was purchased by underwriters. Gazprom's issue was specifically designed to attract foreign investors forced to purchase ruble instruments in partial compensation for GKOs or government bonds, the Financial Times reported. The low nominal value of each bond was aimed at attracting individual Russian investors. Gazprom did not release details on the proportion bought by the underwriters or a split between foreign and domestic or institutional and individual buyers. The underwriters included two institutions controlled by Gazprom and one with a significant state shareholding.

Nazdratenko To Seize Russia's Shipping Co.

· Primorskiy Krai Governor NAZDRATENKO and the Far Eastern Shipping Company's (FESCO) Board are taking steps to seize FESCO. On July 6th, the board rejected a compromise candidate for chairman of the board and approved the NAZDRATENKO endorsed candidate, First Assistant Transport Minister Alexander LUGOVETS. This move is the first to meet NAZDRATENKO's demands issued as apart of his controversial ultimatum at FESCO's May 21st shareholder's meeting. Board members were supported by Richard THOMAS, an analyst at Tiger Securities, who had represented foreign shareholders on FESCO's board. Tiger Securities fired THOMAS the day after the board's vote for failing to carry out his responsibilities on the shareholder's behalf. Tiger Securities Chairman Andrew FOX said, "We were disappointed that one of our people succumbed to the tremendous pressure from the Governor's allies and failed to represent shareholders properly." FOX was threatened with imprisonment and personal ruin by Governor NAZDRATENKO, unless foreign shareholder's of FESCO, who own 42 percent, complied with his demands. According to a company press release, these demands are: LUGOVETS be elected FESCO's chairman of the board; foreign board representatives be reduced on the board; a General director acceptable to the Governor appointed; and foreign investors turn over 7 percent of FESCO shares to Primorskiy Krai. David MAPLEY of Shimoda Capital Advisers said, "Strong arm tactics continue against shareholder representatives, the local media and

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anyone else who gets between the Governor and his seizure of FESCO. This regional rebellion has implication for the future of foreign investment in Russia as a whole, and it demands the close attention of the IMF, World Bank and EBRD. But, the fact remains that almost half the company is owned by Russian and international investors who will not be intimidated and who will fight to prevent the abuse of FESCO." FESCO is Russia's largest and most versatile shipping fleet.

World Trade Organization. The final multilateral meeting will be held from July 23rd to 25th to finalize the documents on Georgia's accession to the organization. The package of documents will then be submitted for endorsement by the WTO General Council in September of this year.

Significant Gas Found In Azeri Shah Deniz Field

· BP Amoco announced Monday that a significant gas condensate has been discovered on the offshore field Shah Deniz, with at least 400 billion cubic meters, and possibly as much as 700 billion cubic meters of gas. The results from the first of two test wells propels Azerbaijan into the race to export gas to Turkey and could seriously reverse plans for a Turkmen-Turkey pipeline. The new discovery is enough to fulfill Turkey's rising demand for gas. Botas, Turkey's national gas company, has projected demand rising rapidly to about 45 billion cubic meters by 2005. BP Amoco President for Azerbaijan Andy HOPWOOD said, "Shah Deniz is clearly, even at this stage a world class gas condensate discovery...and it's big enough to justify consideration of significant exports." He presented these results at a meeting with President Geidar ALIYEV and partners of the seven-member Shah Deniz consortium. Members include BP Amoco (25.5 percent), Statoil (25.5) percent, Elf Aquitaine (10 percent), LUKAgip (10 percent), Iran's OIEC (10 percent), Turkish Petroleum Overseas Company Limited (9 percent), and Socar (10 percent). The Shah Deniz Production Sharing Agreement was ratified on October 17, 1996. Work on the contact area since then has included seabed surveys; 3D seismic; hazard surveys; a rig upgrade project; as well as the drilling of the SDX 1 well. SDX 2 well is now being drilled at approximately 3,600 meters. The Shah Deniz Production Sharing contract covers an area of 860 square kilometers. While Valekh ALESKEROV, head of the Azerbaijan State Oil Company's (Socar) department of foreign investments said the study has exceeded all expectations, the vice president of Azerbaijan State Oil Company and discoverer of the field Khoshbakht YUSIFZADE optimistically says that the field contains no less than one trillion cubic meters of natural gas. "We are ready to begin negotiations on the export of Azerbaijani gas," HOPWOOD said. ALESKEROV, believes that the total amount of natural gas to be extracted from only 10 such wells will double annual gas production in

European Republics

Skele Asked To Form A Latvian Gov't

· New Latvian President Vaira VIKE-FREIBERGA on Monday asked two time prime minister Andris SKELE to form a new government composed of his People's Party, Latvia's Way, and the nationalist Fatherland and Freedom Party. The ruling coalition will control 62 votes in the 100 seat parliament. SKELE said, "I see no problems in general in the coalition formation. All three sides are showing mutual understanding and respect, having set aside personal ambitions." The new government faces several challenges including reducing Latvia's budget deficit of 2.8 percent of gross domestic product in June, and privatizing state-owned Latvian Shipping Company and Latvenergo. SKELE, who was prime minister twice between December 1995 and July 1997, owns Ave Lat a large food processing conglomerate. The industry accounts for 40 percent of Latvia's manufacturing output. SKELE has been described as a controversial leader due to his abrasive style.

South Caucasus & Central Asia

Georgia Holds Talks With WTO Countries

· A delegation from Georgia and representatives of the member-states of the World Trade Organization (WTO) are holding a new round of multilateral talks in WTO headquarters in Geneva. The Georgian delegation, ahead of these talks, met with the US delegation on the side. Earlier, Georgia had similar bilateral talks with other WTO member-countries. The multilateral talks in Geneva will focus on Georgia's report on accession to the WTO and a review of work conducted by Georgia to bring its legislation in line with the WTO requirements before approving a document on Georgia's entry into the

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Azerbaijan which currently extracts about six billion cubic meters of gas a year. Azerbaijan has already signed 19 contracts to develop oil and gas fields on the sea and land, jointly worth $60 billion.

Almaty Airport Destroyed By Fire

· On Friday, the International Airport of Almaty was embroiled with flames destroying the two storey terminal building. It is not clear what started the fire, but one possibility is an electrical malfunction in a privately-owned restaurant. The damage, which completely destroyed the building is estimated at $2 million. There were no injuries. Access to the area is restricted, because of the danger of the collapse of the ceiling. Some Kazakh mass media organs assume that the airport building caught fire as a result of arson, but this version has not been confirmed by investigators. Despite the fire, the ground services of the airport continue to work on a normal schedule. It is not known so far, what will be done with the burned building, which is in a critical condition. Specialists will decide soon whether it will be restored or torn down. The fire, that destroyed the Almaty international airport, was the most damaging fire registered in Kazakhstan over the past several years. This is a major loss for the country, which has only two airport capable of handling international flights. However, last month, local authorities announced that Kazakhstan would receive a $400 million credit from Turkish construction company Altunbaslar to build a new international airport just outside Almaty.

Uzbekistan-US Firms Open Gas Depository

· Uzbekistan's national oil and gas holding company Uzbekneftegas and two US firms opened a $70 million natural gas storage facility on June 29th. It will supply gas to the heavily populated Ferghana Valley, a major agriculture and industrial region that holds an important place in Uzbekistan. Two US oil and gas supplier firms, BSI Industries and Desser Equipment Group, are the main counterparts that created the feasibility study for the project, providing hi-tech equipment and training local personnel. Under guarantee coverage of the US Ex-Im Bank, the

Chase Manhattan Bank, arranged the financing for the project. Uzbek President Islam KARIMOV, who attended the opening ceremony, said that the building of the Khodajaabad depository is part of the long-term state program to promote and facilitate water and gas maintenance to the rural population. He praised the efficiency of the project, noting that due to the dedicated collaboration of Uzbek and United States specialists, the depository was completed in six months.

The depository will be able to store 1.8 billion cubic meters of natural gas at one time and help render Uzbekistan more self-sufficient. Uzbekistan is third in worldwide gas production with 52 billion cubic meters of gas per year. The Uzbek government's decision to build the facility stemmed from previous problems providing gas to the Ferghana Valley. President of BSI Industries, Glenn YOUNG stated that the implementation of this project would give new impulse to the country's economic development and increase the people's living standards. Its completion in such short time was possible due to favorable conditions created by the Uzbek government, efforts of highly skilled engineers and experts, and also the availability of advanced technology, necessary materials and technical bases in the republic. It was particularly noted that Uzbek and US cooperation in the framework of gas depository construction, "has not passed unnoticed in the United States." BSI Industries regularly informed the US government agencies, the governor of Ohio, and the US Senate and Congress of the preparations and accomplishment of the project. President of the Dresser Equipment Group Patrick MURRAY highly rated the competence of the Uzbek oil and gas experts, who with high professional skills have completed construction of other large project like Kokdumalak gas-compressor station, the Bukhara oil refinery plant, and are reconstructing the Ferghana refinery and building the Shurtan gas complex. MURRAY noted that his company considers Uzbekistan a reliable and solid business partner and is ready to continue mutual and long-term cooperation with their Uzbek colleagues.

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

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