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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, July 14, 1999

considerable influence on Russian President Boris YELTSIN through his daughter Tatyana DYACHENKO. He was deputy head of the Security Council in 1996 and was sacked in March from his post as executive secretary of the Commonwealth of Independent States.

Police Prevent Illegal Sales

· St. Petersburg Police have arrested two employees from one of Russia's nuclear-powered ships in the port of Murmansk for attempting to sell radioactive material in St. Petersburg. A spokesman for the anti-organized crime unit said the highly toxic material, Californium 252, was used in Russia's nuclear-powered ice-breaker fleet which clears arctic waterways for ships. He added that officials realized the californium was missing only recently and could have been stolen several months ago. The suspects must have held the substance while searching for a buyer. The two suspects were looking to sell the substance for $50,000. The amount of Californium being sold is not clear.

Meanwhile, security agents have arrested two people on suspicion of running many underground weapons factories in eastern European Russia. During the arrest, the agents seized 10 firearms in Izhevsk, the capital of the ethnic region of Udmurtia. The arms confiscated included a Dra-gunov sniper rifle, a Kalashnikov submachine-gun, a Simonov carbine, Makarov and TT pistols, two revolvers, about 1,000 bullets, and one kilogram of explosive. All weapons were

Russian Federation


Berezovsky To Run For Parliament

· Russia's oil-to-media tycoon Boris BEREZOVSKY announced on Tuesday that he will seek a seat in Russia's State Duma in the December elections. He did not mention which region he will represent or what party he will be affiliated with. BEREZOVSKY told Vremya newspaper that he wants to become a deputy because he knows how to keep Russia on the path of economic reform. "Those people who consider themselves entrepreneurs—capitalists, if you will—must come to power at this time. They know exactly what laws are needed to promote the economic development of the country." Many believe BEREZOVSKY's interest in running is that as a deputy he would enjoy immunity from prosecution. Andrei PIONTKOVSKY, director of the Institute for Strategic Research explains BEREZOVSKY's motives, "I think it is first of all about immunity then respectability." In April, while BEREZOVSKY was in Paris, the prosecutor general's office issued an arrest warrant against BEREZOVSKY for money laundering. When he returned to answer questions, the authorities dropped the charges. Swiss legal authorities are still investigating these claims and raided two businesses last week linked to BEREZOVSKY. The business tycoon could also be positioning himself for the post-YELTSIN era. He could be ensuring his influence through a Duma seat and gaining control of various media outlets.

BEREZOVSKY, who recently purchased a 15 percent stake in Kommersant Daily and is actively trying to take control of TV6, has considerable holding in auto manufacturing LogoVAZ and oil company Sibneft. He said the, "best investments in Russia today are investments in politics." BEREZOVSKY has been in and out of politics and is believed to have

Today's News Highlights


Economy Grows 6 to 7 Percent

US-Russia Reach Steel Agrmt

LUKoil Seeks Share In Refinery

European Republics

Estonia-Sucor Enter Talks

Lith-Georgia Strengthen Ties

Stepashin To Visit Ukraine

South Caucasus & Central Asia

Paris Calls For Abkhaz Peace

Russia To Pay Kazakhstan Rent




July 14, 1999

Intercon's Daily

equipped with silencers. The illegal makers had spare parts for the production of another 15 submachine-guns and 20 pistols. Criminal proceedings are under way.


Ruble = 24.4/$1.00 (NY rate)

Ruble = 24.35/$1.00 (CB rate)

Ruble = 24.86/1 euro (CB rate)

Economy Grows 6 To 7 Percent

· According to the chairman of the Federal Securities Commission, the Russian economy showed a 6 percent to 7 percent growth in the past two months. Dmitry VASILYEV said that in some industries the increase had been as high as 10 percent. VASILYEV believes that the situation for further economic growth in Russia is "very favorable". He hopes that the practice of the past few years of marking forthcoming parliamentary and presidential elections with a decline in production should be ended. That needs a balanced policy in the market of government securities. The issue of Central Bank bonds must be limited to the maximum extent, according to VASILYEV.

Federal budget revenue was 215.2 billion rubles ($8.86 billion), which is 12.3 percent of gross domestic product (GDP), in the first half of 1999, the Finance Ministry today stated. The Tax Ministry brought in 129.2 billion rubles ($5.3 billion) and the State Customs Committee 75.8 billion rubles ($3.2 billion). The country's GDP was 1.7453 trillion rubles ($72 billion dollars) from January to June, according to the Economics Ministry.

US-Russia Reach Steel Trade Agreement

· The US and Russia reached a steel trade agreement on Tuesday. According to Russia Trade Minister Mikhail FRADKOV, the two sides signed two agreements. The first suspends US anti-dumping investigations against Russian exporters of hot-rolled steel. The second sets quotes on Russian steel exports to the US over a five-year period. US Commerce Secretary William DALEY said the US would, "vigorously enforce" both agreements. Under the agreements a moratorium on hot-rolled steel for 1999. DALEY said US Vice President Albert GORE pressured Russian Prime Minister Sergei STEPASHIN into agreeing to US demands in several telephone conversations over the weekend The

Russian exports of hot-rolled coil to the United States will be limited to 325,000 tons next year, 465,000 tons in 2001, 665,000 tons in 2002 and 728,000 in 2003. FRADKOV called the agreement a compromise and noted that the quotas had been increased by 30 to 40 percent as compared to the initial proposal. Russian Foreign Ministry spokesman Vladimir RAKHMANIN said that the US-Russian agreement, "does not fully meet the interests of the Russian metallurgical industry and contains several very tough provisions for Russia." He added that the real problem which led to the trade dispute is that, "under US legislation Russia does not have the status of a country with a market economy." The deal does not prevent the US industry from filing future anti-dumping cases, but it does allow for further suspension agreements, using the quota level as a starting point, the Financial Times reported.


LUKoil Seeks 10 Percent Of Mazheikiu Nafta

· Lithuanian business paper Verslo Zinios reported that Russia's largest oil company LUKoil is seeking a 10 percent stake in Lithuanian oil concern Mazheikiu Nafta. Lithuania is in the final stages of selling a 33 percent stake in Mazheikiu Nafta to US energy firm Williams, which will take over operations and has the option of doubling its stake in seven years. According to a LUKoil document obtained by the paper, "The Lithuanian government, Williams International and LUKoil should become the new company's shareholders. We will be satisfied with 10 percent of the shares." The Lithuanian refinery has been forced to shut down twice this year due to unexplained cut-offs in Russian crude supply. LUKoil points out that if it had a share in the company or a hand in operations, it could guarantee crude deliveries to the refinery and the new export terminal.

Bateman To Pull Out Of Gas Project

· South African Bateman Project Holdings Ltd. said it will pull out of the $180 natural gas project in the Tomsk region of Siberia today unless it is guaranteed at least part of the $22 million it is owed by its Russian partner, Yukos. The Wall Street Journal reported a Bateman director based in Israel saying, "We have no choice. We haven't been paid for almost a year, and we have a lot of costs." In June Bateman sent a termination notice, effective today, to Yukos and has received no response. Since 1994,

When you need to know it as it happens




July 14, 1999

Intercon's Daily

the Bateman group has developed a gas-compression station designed to capture and process natural gas from excavated crude oil. The Tomsk station is the cornerstone of the 1993 Russia Oil and Gas Framework, spearheaded by US Vice President Albert GORE to rehabilitate Russia's decaying energy sector taking into account environmental concerns. Yukos took control of the project in 1998, after acquiring a controlling interest in Tomskneft. Due to low world oil prices, the devaluation of the ruble, Russia's economic crisis, and a shift in Yukos priorities, costs are rising and work is falling behind schedule. Bateman spokesman Andrei KRASNYOV said, "The negotiations are continuing, but I would say the positions are still pretty far apart. Yukos is still trying to resolve the problem. We are not excluding the possibility that Bateman will continue this work." Bateman is still waiting a reply from Yukos.

Meanwhile, Chairman of the Board of the Unified Energy System of Russia (UES) Anatoly CHUBAIS is scheduled to arrive in Novosibirsk to participate in a conference devoted to preparing Siberian power supply services to the coming winter season. CHUBAIS will meet with regional leaders in Novosibirsk, and go on a working visit to the Sayan-Shushenskaya Hydro and the Mainsky integrated water power development.

Georgia's drive for integration into European structures. MENAGARISHVILI said that Lithuania and Georgia share identical views on world issues, especially on the integration of the two countries into the European and North-Atlantic structures. He recalled that Lithuania supported Georgia's admission to the Council of Europe. ADAMKUS and MENAGARISHVILI discussed bilateral relations and prospects for the development of trade and economic ties. It is believed that the Baltic and Black Sea regions will be the focus of bilateral cooperation in the areas of transport and communications. MENAGARISHVILI also held talks with his Lithuanian counterpart Algirdas SAUDARGAS and parliament speaker Vytautas LANDSBERGIS, and signed a Lithuanian-Georgian consular convention. Prior to his visit, the Georgian Foreign Minister said, "Georgia attaches great significance to cooperation with the Baltic countries. We have to restore traditional relations which, unfortunately, were lost in the first years of Georgia's independence."

Ukraine's Industrial Production Rises

· Ukraine's industrial production increased by a nominal 0.2 percent in the first half of the year thanks to a 4.7 percent growth in June. Industrial production actually dropped by 2.2 percent in the first five months in 1998. It began growing in May, and the trend continued in June. Production growth was reported in the sectors of timber processing, energy, nonferrous metallurgy and food industry, respectively by 14.5 percent, 4.9 percent, 4.6 percent and 4.1 percent over the same period of last year. However, production fell in the sectors of building materials, fuel industry, ferrous metallurgy and light industry, respectively by 5.3 percent, 3.8 percent, 3.4 percent and 3 percent. Agricultural production registered the first growth in eight years after the country's independence from the former Soviet Union. Although the growth was only 0.6 percent, it is expected to continue. The country's industrial production and gross domestic product reported first growth in the first eight months of last year since independence. But the economic situation worsened again in the following months due to the August financial crisis in Russia.

Stepashin To Visit Ukraine

· Russian Prime Minister Sergei STEPASHIN has planned a working visit to Ukraine on July 15th to 17th for the development of bilateral relations. Rus

European Republics

Estonia Open Talks With Canada's Suncor

· The Estonian Economics Ministry today announced that it has opened talks with Canada's Sucor Energy over the possible purchase of Estonia's main oil shale producer, Eesti Polekivi. According to a ministry statement, the talks covered general overviews of Suncor and the production of oil shale in Estonia. The next meeting between the sides is scheduled for September. Estonia's government has expressed an interest in selling one-third of Eesti Polekivi by year-end. Suncor, which starts oil shale production in Australia later this year, is one of Canada's largest energy companies with operations around the world.

Lithuania-Georgia Strengthen Ties

· Lithuanian President Valdas ADAMKUS received Georgian Foreign Minister Irakly MENAGARISHVILI, who arrived on a two-day official visit to Vilnius on Monday. ADAMKUS said that his country supports

When you need to know it as it happens




July 14, 1999

Intercon's Daily

sian Foreign Minister Igor IVANOV stressed that the visit is very important. He added that, "Stepashin will visit Ukraine both as the Premier and as the Chairman of the bilateral intergovernmental commission." He will meet with Ukrainian President Leonid KUCHMA and Prime Minister Valery PUSTOVOITENKO on Thursday. The sides will focus on the trade and economic relations, as well as the settling of energy debts and the Russian debt to Ukrainian enterprises. KUCHMA said, "We have prepared a large portfolio of proposals on how we could pay Russia. Ukraine is the largest consumer of Russian natural gas, receiving about 55 billion cubic meters a year. Its debts to Russia's gas monopoly Gazprom total over $1 billion. Ukraine and Russia will also discuss the joint project to build a new Antonov military cargo plane and prospect for nuclear power engineering. The stay of the Russian Black Sea fleet on Ukrainian territory and the delimitation of the border will be discussed, too. The meeting will end with the signing of several documents. Stepashin is expected to visit the headquarters of the Black Sea fleet in Sevastopol.

South Caucasus & Central Asia

Paris Calls For Peace In Abkhazia

· France's ambassador to Georgia, Mireille MUSSO today in Paris called for a peaceful solution to the conflict in Abkhazia, Georgia's independence-seeking region. "France comes out in favor of a peaceful settlement for the conflict in Abkhazia. This problem should be solved with the consideration of Georgia's territorial integrity and sovereignty," MUSSO said on Georgian Television. As a member of the Group of Friends of the UN Secretary-General for Georgia, which also includes Britain, Germany, Russia, and the US, France will assist in the peace process, she said. Georgian-Abkhazian talks which took place in Athens in October 1998 and Istanbul in June 1999 and were sponsored by the group helped create an atmosphere of confidence. Russian Foreign Minister Igor IVANOV and UN Secretary-General envoy for Georgia Liviu BOTA met in Moscow in connection

with the end of BOTA's mission. They expressed satisfaction with the cooperation between the UN mission in Georgia and the peacemaking troops in Abkhazia. In the opinion of IVANOV and BOTA, the interaction is very important for keeping peace in the region and preventing armed clashes, the spokesman said. Meanwhile RFE\RL Newsline reported that the last contingent of Russian border troops left Abkhazia on July 10th in accordance with an agreement signed last year by Moscow and Tbilisi. In June, Russia had handed over control of eight frontier posts to Abkhaz frontier guards, who now control the full length of the breakaway republic's border, according to Abkhaz Deputy Security Minister Sergei TSARGUSH. It is unclear whether the departing Russians took with them all their movable property, as stipulated in the 1998 agreement, or ceded some equipment to the Abkhaz.

Russia-Kazakhstan Reach Rocket Agreement

· Russia has agreed to give in to Kazakh demands for compensation due to the explosion of a Russian Proton-K rocket at the Baikonur base. Kazakhstan had barred launches from its Baikonur Cosmodrome after the crash last week. Several tons of toxic heptyl fuel were released into the atmosphere during the crash, prompting Kazakhstan to demand compensation from Moscow for environmental damage. Russia has agreed to pay $50 million by December and $65 million in good and services against rent arrears. Moscow has run up debts of over $300 million for the use of Baikonur, which costs $115 million a year to rent. Russia has been pressing Kazakhstan on this issue in order to meet a launch deadline for a cargo shipment of food, oxygen supplies, and equipment to the space station Mir. The Progress cargo craft was due to blast off today. Russian Space Agency officials said the failure to launch the Progress cargo craft could threaten the Mir automatic pilot program causing it to crash to Earth. "We will not lift the ban until at least preliminary results of the Proton crash investigation are available," deputy head of the Kazakhstan Aerospace Agency USIMBAYEV said. These results are expected sometime next week.

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

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When you need to know it as it happens